No matter who you are or how successful your small business is at present, there will likely come a time when you need extra cash. Possibly the need will arise when you are in the start-up phase. Or possibly, it will be years later when you are in the midst of an expanding. Whenever it occurs, you will be likely flabbergasted by using all of the funding options that are available.
A merchant cash advance (MCA) is just one of those options; however, by the time, you finish reading this article, at least you will understand whether this sort of financing is right for you.
What Is an MCA?
With a merchant cash advance, you are basically selling a portion of your future receivables (generally debit and credit card receipts) in exchange for a lump sum of cash.
Retail businesses and restaurants whose customers regularly pay with plastic, typically benefit the most from this type of funding.
How An MCA Work?
Before you get your merchant cash advance, you and your lender need to be able to agree on the subsequent elements:
The size of the amount that your business actually needs.
MCA Factor Rate
This number multiplied by the merchant cash advance amount is how much you will need to pay the lender.
For instance, if you get $20,000 in cash and negotiate a factor rate of 1.3, you will be expected to repay a total of $26,000.
This is the percentage of credit and debit card proceeds in order to be remitted to the lender each month. For instance, in case your retrieval rate is 10% and you make $50,000 in receipts this month, you may pay the lender $5,000.
Once the entire amount of loan has been paid off, you will get the full proceeds of all of your credit card transactions.
Typical Terms to Expect with an MCA
With an MCA, the payment structure is not always determined by time; it fluctuates according to the amount of your credit receipts. Generally, most cash advances are paid back in full in 4 to 18 months. As for factor rates, they can range from 1.14 to at least 1.42 and the average retrieval rate could be somewhere among 5 and 15%.
MCA Application Process
The time an MCA takes to get approved could be anywhere from an hour or one to two days, based on the business. Moreover, once the application is approved, a business could see the funds in their account within days.
The application process for an MCA is not as complex as a conventional loan, which often makes the cash advance approval process a quicker option. Here are some steps a small business needs to take:
Apply for an MCA
The cash advance application is typically 2-3 pages long and will require your business tax ID, information regarding your business and your social security number.
You will likely be requested to provide several months of credit card or payments processing data as well as bank statements.
The approval process is as quick as you get approved within 24 hours for a merchant cash advance.
Set Up the Credit Card Processing
This sort of business funding may require the small business to switch to a new credit card processor. It may be problematic to exchange processors; however, it is a necessary part of the approval for many cash advance lenders.
Get the Cash
The cash from a merchant cash advance will be transferred into your small business bank account and all the repayment process will be taken automatically.
In case you are considering a merchant cash advance for financing the purchase of equipment, inventory, an expansion project, or advertising initiative, a merchant cash advance is an option that you are looking for.