Unlike your typical loan, a merchant cash advance (MCA) is paid to you against your company’s future income or credit card sales. In essence, with an MCA, you sell a percentage of your company’s future card sales in exchange for immediate cash.
This percentage, or retrieval rate, is also called the “holdback” and usually ranges between 5% and 20% depending on the repayment term, the amount advanced, or your business’s total credit sales. Terms vary between three to eighteen months based on the amount advanced. Repayment starts immediately after you receive the cash.
How much cash advance you qualify for depends on your business’s average credit card sales. Usually, you can receive a merchant cash advance of anywhere between 50% and 250% of your company’s credit card sales.
Below are some of the benefits of a merchant cash advance facility.
1. Straightforward Application Process
The beauty of a merchant cash advance is that, like other facilities such as lines of credit or business loans, you can apply online. You can initiate and conclude the entire application process online. All you have to do is fill out the online application form and attach all necessary documentation, e.g. bank account statements, your business tax returns, and credit card statements. You can conclude the entire process in minutes.
2. Quick Funding
One of the unique advantages of a merchant cash advance is the fact that approvals are lightning fast, and funding follows quickly after. It is not uncommon to receive a response to your merchant cash advance application within hours, and funds transferred to your account within days. If you are looking for quick funds to cover urgent business expenses, this facility is the real deal.
3. You Don’t Need to Have a Perfect Credit Score
Most business loans are approved on the basis of a strong business and personal credit score. However, merchant cash advance lenders are not overly concerned with a perfect credit score. What they are keen on scrutinizing is your credit card revenue. They also want to know the duration you have been in business, your level of indebtedness, and your record of past payments. If building your credit rating is important to you, a merchant cash advance facility is unlikely to help you on this front since a majority of MCA lenders do not report to credit bureaus.
4. No Collateral Is Required
Unlike traditional lenders who insist on collateral or surety to secure a loan, MCAs are unsecured. You don’t have to put down any collateral to qualify for a merchant cash advance facility.
5. Flexible Repayment Terms
An MCA facility has flexible repayment terms since it is calculated as a percentage of your total credit revenue. Compare this to small business loans, which feature a fixed interest rate that does not change, whether your business is doing well or not. With a merchant cash advance, the dollar amount you pay every month depends on your credit card receipts for that month. Therefore, if you have a slow month, the repayments will reflect that as well.
6. High Borrowing Limits
With a merchant cash advance facility, you can borrow anywhere between a couple of thousands to up to two million dollars depending on the company you are dealing with, and the profitability of your business. A traditional leader would most likely not approve such a hefty loan, especially if your application is not supported by commensurate collateral, and a stellar personal and business credit score.
A merchant cash advance can get your business out of a tricky financial situation. Whether you are experiencing cash flow hiccups and want help to pay your staff salaries, or perhaps you are looking for a substantial loan to capitalize your business, an MCA facility is just what you need.