How Merchant Cash Advances Can Fuel Your Business Expansion?
- Category: Business
[Source – whatech]
Need cash for your business startup but don’t want to deal with the usual bank loan hassle? A Merchant Cash Advance (MCA) might be the answer that you’re looking for. It is the simple and fast way to get funding for your business without the long paperwork and the strict rules. The Merchant Cash Advance offers a unique way to access funds based on your future sales. This article will delve into the strategies and how these financial tools can help you make your business grow.
What is Merchant Cash Advance?
The MCA is the way to get short-term funding if you’re unable to get a loan from a bank or another investor. These advances are given based on you’re future credit card sales, and you usually pay them back, along with fees, within six to twelve months. For the qualifying the merchant cash advance, your business needs to have regular daily credit card transactions and proof of at least four months of credit card sales. Most moneylenders usually expect your monthly credit card sales to range from $2,500 to $5,000, depending on the size of the advance. This helps the moneylender make sure that can repay the loan.
How does the Merchant Cash Advance Work?
These MCA companies are the most likely to work with businesses if you mainly depend on debit and credit card sales. This usually includes businesses like retail stores, service shops, and restaurants. However, if your business doesn’t have high debit or credit sales, there are still two options for getting an advance:
1. Traditional Merchant Cash Advance:
With this option, your business receives a lump sum of money upfront. To repay this advance, a set percentage of your daily or weekly sales is automatically sent back to the advance company until the full amount, plus fees, is paid off. This repayment process is known as the “holdback.” The more your business earns, the faster the advance is to pay it back. However, you shouldn’t encourage customers to pay in cash to avoid repaying part of the sales, as it breaks the agreement and could lead to legal trouble.
2. ACH merchant cash advance:
An ACH advance gives you a lump sum of money upfront, which you pay back through your business’s account checking. A fixed amount is automatically withdrawn from your account daily or weekly until the advance or the plus fees, is fully repaid. Unlike a regular merchant cash advance, the repayment amount stays the same, no matter how much your business earns. This type of advance can be paid off faster, but if your business runs out of cash, it can also be difficult to make these scheduled payments.
History and the concept
The MCA was started as a way for businesses to get a lump sum of money in exchange for a percentage of their future credit or debit card sales. This idea came from Barbara Johnson, who needed money for her small business company. She, along with her husband Gary and Les Falke, had co-founded the first MCA company, AdvanceMe, which later became CAN Capital. Les Falke created the term “Merchant Cash Advance” to describe this type of financing, which has now become a common option for small businesses. Unlike other traditional bank loans, MCAs offer short repayment terms under 24 months and small daily payments instead of larger monthly ones.
Today, the term can refer to either the purchase of future credit card sales or short-term business loans. These MCA companies give businesses the money in exchange for a portion of their daily credit card sales. This money is taken directly from the business’s credit and debit card payments every day until the amount is fully paid back. Most of these companies work with payment processors to take a fixed or changing percentage of the business’s future credit card sales.
Difference between Merchant Cash Advance Pros and cons
| Pros | Cons |
| Almost immediate access to cash | Extremely high APR as high as 200 percent |
| Easy repayment | High payment frequency |
| A low credit score is acceptable | No impact on business credit score |
| No restriction on loan use | Binding in the ways that other loans aren’t |
| No need to put collateral | Unavailable to small businesses that do not accept credit cards |
Top 3 MCA Companies in 2024
- Credibly: Credibly is the top company for merchant cash advances because it has easy approval for requirements and offers many types of business financing. They can also review the applications in just one business day, helping you to get your funds quickly.
- Fora Financial: Fora Financial offers business funding through loans and MCA. They don’t need the hard credit check when you apply, and they can also provide funds to businesses with a credit score of at least 500.
- Paypal: This company also offers funding to the business using the information from our PayPal account history. Borrowers repay the MCA automatically with a percentage of each PayPal sale until the amount is fully been paid.
Conclusion:
A Merchant Cash Advance is a Flexible way for small business owners to get money quickly without dealing with the long process of traditional loans. It works by giving you a lump sum of cash based on future credit card sales, helping you manage finances or take new opportunities. Whether you choose a traditional MCA or ACH advance, this can be customized for business. The Merchant Cash Advance can help your business grow, but it’s important to consider all the details and plan carefully.
