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If you’re looking for fast and flexible funding to meet a short-term need of capital, a Merchant Cash Advance (MCA) can be one of the most popular and advantageous options. Because of its quick application and approval process and easy credit requirements, MCA is a convenient funding program for small business owners to grow their businesses and sustain cash flow temporarily.
Wondering whether a Merchant Cash Advance is a great funding option to meet your business’s financial needs? Let’s get started!
What is a Merchant Cash Advance?
Technically, MCA is not a loan; it’s an advance payment against your business’s future income. With Merchant Cash Advance, the lender provides a lump sum advance, which is then repaid automatically using a percentage of your daily credit card or debit card receipts, along with an additional fee. The lenders generally look at your credit card processing statements to examine if you can repay the borrowed amount through your day-to-day sales from the credit card.
As compared to traditional bank loans, MCA is an easy and quick way to get funding for your small business. Moreover, it has a fast approval process with no collateral requirement that will better suit most small businesses – you don’t even need to have perfect credit.
Whether you’re looking to purchase new inventory, bridge the gap in cash flow, pay the debt, open a new location or advertising, a Merchant Cash Advance can be used for a variety of business purposes.
MCA fees are usually higher than many of its counterparts, however, and the exact fee amount varies based on the borrower’s ability to repay the amount. To calculate your fee, lenders determine the factor rate based on your creditworthiness. If your business shows a healthy stream of credit or debit card payments, the lender will likely charge you fewer fees.
Features of Merchant Cash Advance
Security: Unsecured, no collateral is needed to secure the advance.
Maturity: Payments are processed daily through your merchant account until the advance is fully repaid.
Factor rate: Typically falls between 1.14 and 1.18.
Funding Time: Expedited process enables funding within as little as 48 hours.
How are Merchant Cash Advances beneficial for you?
For many small business owners, fast approvals, fund releasing, and easier qualification requirements are the biggest drivers of MCAs. Though an MCA has numerous advantages, here are some of the major benefits that a small business can get with a Merchant Cash Advance.
- The online application process for a Merchant Cash Advance is simple and easy
- You don’t need to have a perfect credit to apply for an MCA
- Payments with an MCA are much more flexible since payments are based on your credit card sales
- Fast approval and funds release – can get funds within 24 to 48 hours
- Repayment isn’t a fixed monthly payment
- There is no collateral requirement for Merchant Cash Advances
Related: What to Consider Before Getting a Business Loan
Why do you need a Merchant Cash Advance for your small business?
Whether you are only seeking loans on a short-term basis or want to balance cash flow in a seasonal business, you can use an MCA for a variety of small business purposes. A Merchant Cash Advance is a great funding option if you are:
- Looking to expand business operations
- Looking to purchase new inventory or equipment
- Dealing with seasons issues
- Meeting payroll expenses
- Needing temporary cash flow help
- Paying other debts due
- In need of cash to pay unexpected payments and unplanned expenses
How does a Merchant Cash Advance work?
A Merchant Cash Advance is usually for businesses whose primary revenue stream is from credit and debit card sales such as restaurants and retail shops. With a Merchant Cash Advance, an advance lump sum amount is given to borrowers which are based on their business’ financial health.
The borrower agrees to pay the lender with a percentage of his/her daily credit card sales. This amount is calculated based on the amount funded plus fees called a factor.
For example, you have borrowed $20,000 and factor rate is 1.50, the lender will collect $30,000 ($20,000*1.35). In other words, the fee is 50% of the borrowing amount.
The repayment period typically ranges from 3 to 12 months; the higher your credit card sales, the faster you’ll repay the amount.
In this case, let’s assume your lender deducts 10% of your monthly credit card sales until you’ve repaid the $30,000. And if your day’s revenues total $4,000, then the repayment amount of that day would be $400. In this way, you would repay the Merchant Cash Advance until it is totally paid. If the average credit card sales of your business are $400 every day, you would pay off the advance by the 75th day.
Related: Exploring Financing Options: 11 Types of Small Business Loans
How much does an MCA loan cost?
Merchant Cash Advances often come with factor rates instead of interest rates which usually range from 1.14 to 1.48: a factor rate is a percentage that shows how much extra you owe on a loan. Unlike an interest rate, the factor rate is expressed in decimal figures.
Besides that, MCAs often include processing fees, set-up fees, and even payment fees that can as much as double the actual cost of the loan. You pay only when you draw funds, and at a regular interval of time, you simply put back part of the amount you drew, plus a flat fee.
Overcome cash flow bottlenecks
Dealing with cash flow hurdles can be a real headache, right? It’s not just about finding the funds but really getting to the bottom of why these issues keep popping up. Did you know that a 54% of businesses struggle with late payments, throwing a wrench into their financial plans?
That’s where Forwardly steps in to save the day. Instant payments that take just 60 seconds to process, no matter where or when you are. Plus, you can say those hefty processing fees goodbye because Forwardly slashes them by up to 80% compared to credit cards. That’s more money staying in your pocket.
And more good news: No need for new bank accounts or subscriptions. Forwardly keeps it simple so you can focus on what matters – keeping that cash flow healthy. With features like free same-day ACH transfers and bill payments, you’ll be settling those bills in no time. Plus, we offer rolling cash flow forecasts and detailed financial insights to show you a full financial picture.
So why stress about cash flow when Forwardly has your back? Let’s keep those funds flowing smoothly together!
