For all small businesses, a Merchant Cash Advance (MCA) is a blessing in securing finances during challenging times. It is also known as a merchant loan. MCA is upfront working capital provided to a business in exchange for its future credit card sales. The advance and associated costs are remitted through a certain percentage of your daily or weekly sales. Generally, it is paid over 90 days to 18 months.
Other alternatives are available in the market, including lines of credit or business loans. MCA is one of the most preferred options because it can be obtained in less time and has flexible payment plans. You can apply for a Merchant Cash Advance with a credit score of 500 or above. However, it is more expensive than other lending methods and does not affect your credit score.
How Does a Merchant Cash Advance Work?
An MCA agreement between a lending company and a business owner works around multiple things before approval. Before getting into details, you must understand some important terms to learn about MCA.
- Holdback Rate: Also known as remittance rare, it is the percentage of daily or weekly sales your MCA loans provider takes to remit your advance.
- Factor Rate: The factor rate is the cost of the cash advance determined in a decimal amount, and the advance represents the total amount to be repaid. For instance, if a company receives a $10,000 advance with a 1.2 factor rate, the total amount would be $12,000.
- Flat Fee: This is similar to the factor rate but is calculated differently. It is a percentage added to the total amount you have to repay to your lender. For instance, if your approved MCA is $10,000, a flat fee of 12% would be a total amount to be remitted to $11,200. Some merchant cash advance funding companies operate on a flat fee basis, while others may use factor rates.
- Purchase Amount: The purchase amount is the total of the cash advance and its respective cost, either the flat fee or the factor rate amount.
Now, the amount that you are eligible to advance depends mostly on your average credit card sales. MCA can be as small as 50% of your monthly sales or up to 250% of your monthly sales, depending on your business needs and the lender’s approval.
To repay the cash advance amount, a small percentage, known as the “holdback rate,” is calculated and taken with each credit card sale over the repayment period. The merchant cash advance loan lender withholds that amount daily until the MCA is paid back in full.
The holdback, also called the “retrieval rate,” can be between 5% and 20%, decided by the lender, your daily credit card sales, the amount of your advance, and the agreed repayment time.
You will repay the advance sooner if your business is doing well and receiving more credit card transactions. You can repay the amount without getting the burden of debt on your business and affecting its operations.
How Do You Apply For MCA?
- Choose your MCA provider that suits your business needs
- Complete an application diligently.
- Submit all relevant documents, usually payment statements and several sales and credit statements stating your company’s credit card transaction history.
- Review your MCA offer thoroughly. The offer includes the factor rate or flat fee and any other conditions. You can take a consultation before making any decision.
- Once you sign the agreement, the MCA provider performs a quick underwriting process.
- You will be approved and receive the funding shortly after that. Typically, it takes 24-48 hours to get MCA in your business account.
- The advance amount will be remitted automatically through your daily or weekly credit sales until it’s remitted in full.
One of the many Benefits of Merchant Cash Advance is their flexibility and efficiency. You can get fast money to fulfill your business needs and enable your business to grow without worrying about debt. The lending company will act like a partner and take their share daily or weekly.
When Should You Choose A Merchant Cash Advance?
Furthermore, there are a few attributes to consider when choosing a MCA over a bank loan or line of credit, including:
- You need immediate funding for your business
- You have a strong history of credit card sales
- You prefer not to put up collateral
- Automatic payment withdrawals sound good to you
- You don’t mind paying higher rates for faster funding turnaround
- You prefer your credit history not to be assessed
In so many ways, a merchant cash advance is a powerful tool for businesses that need quick capital and a steady flow of credit card sales. However, the most effective funding options have their own pros and cons that you must consider before opting for them. You need to choose a lending company to help you grow your business in multiple dimensions.
Whether you need funding or not, you must look for a reliable company to take MCA for your business. Purple Tree Finding can help you get the highest amount without any additional fees. We can help you get up to $500k. Our company has the most convenient 3-month flexible terms with customized interest rates and ease of access to the funds for timely exploitation of opportunities.
For more information and consultation, visit us now and let your business flourish seamlessly in the immensely competitive market.
