Merchant Cash Advance (MCA) or Business Cash Advance is a range of loans for businesses and startups to borrow money quickly and efficiently. Corporate funding options, along with short payment terms of typically 24 months and regular rewards, paid out every business day, characterize MCAs. This system is in contrast to the larger monthly payments typical of traditional bank loans and longer disbursement times.
In general, MCA can be used to describe short-term business loans and future receivables from credit card sales. This type of financing is for businesses with steady and continuous credit card transactions, including restaurants, retail stores, pharmacies, and more. How does a merchant cash advance work?
The merchant’s cash advance is usually quick to receive. The first step is to verify the identity of the company you want to borrow money from. Documents required for this include:
Proof of identity issued by the government
Processing bank statements and credit cards
Corporate tax return
Once the ID approval is processed and completed, it only takes a few days before businesses receive their borrowed funds. They then receive an amount and return it through sales to the customer. To repay the borrowed amount, the borrower offers the lender a percentage of the daily turnover, as specified in the contract. This can also be done through a connected merchant account, which is calculated based on processed debit and credit card sales. In this case, sales by check and by cash are not included in the daily quota.
Clearances can also be withdrawn directly from the borrower’s bank account through Automated Clearing House (ACH) payments. Following this logic, small businesses with low debit and credit sales rates may also be eligible for an MCA if they choose to receive cashback from ACH. The amount MCA can borrow ranges from a few thousand dollars to over two hundred thousand dollars. Regardless of the rental amount, the payback period is generally very short. In most cases, this is about 18 months or so.
Advantages of MCCA:
MCAs have a number of benefits, some of which include:
Easy application process: MCA includes a quick application process and can get a loan within one day. It’s also easy to qualify because in this case, loan credit history is less important than sales history. Flexibility: The MCA allows for a variety of payment plans and methods and allows borrowers to use the funds as they see fit. Since payments are based on a percentage of daily transactions, debtors do not have to repay if they have low income. This leads to cash flow problems that can cause the company to take on more debt. Unsecured: MCA loans are unsecured, which means they do not tie the borrower to any collateral. For businesses with limited assets, this feature is a godsend. Disadvantages of MCA:
Disadvantages of MCA include:
Potential Cash Flow Problems: The MCA requires a specific amount of future revenue from the borrower specifically to repay the borrowed amount. This results in cash outflows which can lead to more debt for the business. Relatively Higher Cost: The cost of obtaining an MCA, as a factor rate rather than interest, is much higher than many other types of funding. The factor rate is not dependent on a particular time period and therefore upfront does not save money. If you’re not sure what steps to take for your business and want to ask a question about Business Cash Advances, visit our website. We offer a variety of merchant cash advances that will cater to each individual customer.