Merchant cash advance overview
A merchant cash advance (MCA) is a type of financing that allows small businesses to get lump some money today based on their future credit card sales.
When a business takes out an MCA, they agree to sell a percentage of their future credit card sales to the MCA lender at a discount in exchange for a lump sum of money today. The money the business receives can then be used for any purpose, such as purchasing inventory, expanding the business, managing cash flow, etc.
One of the key advantages of an MCA is that it is relatively easy to qualify for, compared to traditional business loans. MCA lenders typically focus on the business’s credit card sales and cash flow, rather than its credit score or financial history. As a result, small business owners with bad credit or limited credit history find merchant cash advances easier to qualify for than traditional business loans.
How to get a merchant cash advance
The process is simple. Companies like GetMoney.com offer an online solution through simple forms that take minutes to complete. Once you complete and submit the form an agent will contact you to review the request, discuss options, and most importantly see if a merchant cash advance is a right fit for your business. Merchant cash advance providers are generally focused on the monthly revenue of the business and its ability to pay back promptly. Credit scores aren’t as important as they are to traditional lenders.
What are the required documents for a merchant cash advance?
1. Three months business bank statements. The bank statements must be in the name of the business.
2. A voided business check.
3. Some companies ask for a copy or a picture of your ID to verify your identity.
4. Other documents may be required on a case-by-case basis.
What is a merchant cash advance factor rate?
The merchant cash advance (MCA) factor rate is a measure of the cost of an MCA. It represents the amount the business will have to pay back for each dollar it borrows through an MCA. The MCA factor rate is typically shown as 1.15, 1.20, or 1.30, etc. For example, if a business takes out an MCA with a factor rate of 1.30, this means that for every dollar that it borrows, it will have to pay back $1.30 in total; this includes the principal and any fees or interest charges.
The MCA factor rate is typically higher than the interest rate on a traditional business loan. MCA lenders take on a higher risk by providing capital with minimal documentation in as little as two business days. Therefor, they charge higher fees and interest rates than traditional lenders to justify the risk. As a result, the overall cost of an MCA may be significantly higher than the cost of a traditional business loan which could take a month or two to secure, even if the repayment period is shorter.
How do factor rates affect merchant cash advances?
The factor rate of a merchant cash advance (MCA) has a significant impact on the cost of the financing. The higher the factor rate, the more expensive the MCA will be. For example, if a business takes out an MCA with a factor rate of 1.20, this means that for every dollar that it borrows, it will have to pay back $1.20 in total, and if the factor rate is 1.50, it will have to pay $1.50 for every dollar borrowed.
Merchant cash advance drawbacks
MCAs also have some significant drawbacks that businesses should consider before taking out this type of financing. One of the main drawbacks is the cost. MCA lenders typically charge higher fees and interest rates than traditional business lenders, which can significantly increase the overall cost of the financing.
In addition, the repayment structure of an MCA can be unpredictable, as the business is required to pay back a percentage of its credit card sales on a daily or weekly basis. This can make it difficult for businesses to budget and plan for their financial needs.
Another potential disadvantage of an MCA is that it may require the business to put up collateral or agree to a lien on its assets. This means that the business could risk losing its assets if it is unable to make its MCA payments.
Despite these drawbacks, an MCA can be a useful financing option for small businesses that need quick access to cash or that may not qualify for traditional business loans.
What are the risks of a merchant cash advance for a business?
There is a risk with any type of financing regardless of the terms and structure. If a business can not meet its financial obligations to a lender, they risk going into default and the legal proceedings that will follow.
Although a merchant cash advance (MCA) can be a useful financing option for any small business that doesn’t have the time or credit history required for traditional business loans, it has certain risks associated with it if the business can not meet the expected daily or weekly payment requirements.
Some of the potential risks of an MCA for any business include:
1. Cost: MCA lenders typically charge higher fees and interest rates than traditional business lenders, which can significantly increase the overall cost of the financing. The repayment structure of an MCA can also be unpredictable, as the business is required to pay back a percentage of its credit card sales on a daily or weekly basis, which can make it difficult for businesses to budget and plan for their financial needs.
2. Collateral or lien: An MCA may require the business to put up collateral or agree to a lien on its assets.
3. Unpredictable cash flow: As an MCA requires the business to pay back a percentage of its credit card sales on a daily or weekly basis, the business’s cash flow may be unpredictable.
4. Risk of default: If the business is unable to make its MCA payments, it may default on the loan, which could have serious consequences for the business, including damage to its credit score, legal action, and the potential loss of its assets.
Businesses that are considering an MCA should carefully weigh the potential risks and benefits of this financing option. They should also be aware of the potential risks and costs associated with an MCA and should compare it to other financing options to determine which option is the most suitable for their needs.