Understanding a Merchant Cash Advance
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Merchant Cash Advance
A Merchant Cash Advance (MCA) is a type of business financing in which a business advances you a lump sum that you repay through a percentage of your daily credit card and debit card sales plus a fee. Technically, a merchant cash advance is not a business loan, but rather you are selling your future debit and credit card transactions at a discount.
Typically, merchant cash advances are repaid daily or weekly, and the financing company automatically collects the payment from your payment processor. This way, repayments are based on your sales - if you experience a drop in sales, your payments will also be lower, but it will take longer to repay the advance.
Merchant cash advances are usually easy to apply for (even if you are a startup or have a poor credit rating) and are paid out quickly. However, they are known for high APRs - and since they are not business loans, there are few regulations on merchant cash advances.
MAX ADVANCE AMOUNT:
Up to $500,000
Paid daily or weekly via your merchant or bank account
Typically ranges from 1.1% to 1.5%
As fast as one day
Quick access to funds and easy approval process
Accessible to businesses with bad credit
Suitable for a range of business purposes
Repayment based on your sales
Higher fees than most other loans
Daily deduction of credit card sales
reduces cash flow
Easy to end up in a debt cycle
Confusing contracts and little regulation