Are you a small business owner looking for funds? You may opt for merchant cash advance, which assures funding based on your “future” receivables. Before getting funded by a merchant cash advance provider, learn about the basics – use, benefits and alternatives of merchant cash advance.
Merchant cash business is among the best solution for small business working capital financing. This type of financing is repaid on a daily basis as a percentage of your sales or revenue. If your sales are high, your advance is paid off faster and if sales are lower, your payment is lower.
Features of merchant cash advance
- Financial aid for temporary credit needs: Based on the monthly card receipts of the business, a customer can withdraw a lump sum amount in order to fulfill his or her short-term financial needs.
- Simple application process: Due to less complication in the application process of merchant cash advance in comparison to that of a traditional bank loan, it takes much less time to get approved.
- Flexible repayment tenure: An agreement is made between the lender and the merchant regarding the repayment tenure and the customer has to pay the entire advance in full within this period of time.
- Quick credit disbursal: A customer will receive immediate funds transferred to his/her account if he or she chooses a financial scheme during crisis.
- No collateral is required: Since the loan amount is transferred directly to the applicant’s account, the credit lender has the bank account details of the business owner. Hence, there is no requirement to provide any collateral in order to avail this scheme.
- Hassle-free repayments depending on the business: The holdback percentage is determined using the sales of the business and hence, the repayment amount might increase or decrease depending on how the business is doing.
- Other financial schemes can be availed simultaneously: You can still apply for a different financial scheme for your business while repaying the debt of merchant cash advance.
Eligibility criteria:
The terms for the eligibility of Merchant Cash Advance are quite simple. Below mentioned is the list of requirements for MCA:
- The applicant should have a stable business.
- The minimum annual turnover of the business should meet the requirement of the lender.
- The business should have been accepting card payments for a decent amount of time.
- The candidate should have a decent credit score in line with the requirement of the financial service company.
Why is merchant cash advance suggested?
- Merchant cash advance is most often used by small retailers and restaurants that do not yet qualify for traditional bank lines of credit.
- A merchant cash advance provider is more willing to lend to smaller operations or businesses with weak credit since they are looking to be paid back from the credit/debit card proceeds, not from the business owner.
- No additional collateral or personal guarantees are needed.
- The time to obtain financing is usually pretty quick.
When does merchant cash advance backfire?
- The fact that the financing is extremely high priced is the major downside of the merchant cash advance. The faster you pay back the advance, the higher your annual percentage rate goes during payback.
Factors calculating the estimate of MCA
The term of MCA financing isn’t fixed, but depends on how quickly your credit/debit card proceeds come in, and it shouldn’t stretch more than a year. The following determines the actual rate of MCA:
- Factor rate: The multiple of the cash advance that determines how much you need to pay back over the specified time period.
- Retrieval rate: The percentage of your credit/debit card proceeds (“receivables”) that is used to repay your advance on a daily basis
These are the reasons why merchant cash advance is among the best ever financing solution for small business working capital.
