Merchant Cash Advance and How it Provides Prompt Working Capital To Cover Any Business Overhead Cost
As a small business owner, it is crucial to understand the significance of a well-managed cash flow and its benefits. Many companies have failed or shut down when they are hit with an unexpected cash flow crunch. Thus, it is a critical component of continued success for a business. Most of the businesses experience cash flow fluctuations irrespective of the size. Whether you have made fewer sales or the overhead running costs are higher than expected – fluctuations in cash flow are bound to happen. However, there are business financing options available to provide you with the working capital required to keep your business in business.
If you are looking for a good source of fast cash or a shortcut to fund your working capital quickly, merchant cash advance is the perfect choice for you!
A merchant cash advance or MCA has become one of the most convenient options for small businesses or startups who seek to sustain their cash flow on a temporary basis. Before proceeding to know how it helps small businesses, let’s learn what MCA is all about and its advantages.
What is a Merchant Cash Advance?
To be clear, a merchant cash advance is not a type of loan. Instead, MCA is an advance payment that a lender provides in return for your future debit or credit card sales. An MCA provider will offer you fast cash, a lump sum amount, which your business will automatically repay as per the agreed percentage amount of your daily credit card sales.
The percentage agreed between you and the lender is known as a ‘holdback.’ Some people also refer to holdback as “retrieval rate”, which is based on the size of the working capital you require. The factors that also influence the retrieval rate depends on your daily credit card receipts and repayment period. The repayment terms and period are also dependent on the cash advance amount where you can either pay off the entire amount in as short as 90 days or stretch it to a year or so.
Despite having a high approval rate, there will be a limit to the amount you can borrow from an Merchant Cash Advance lender. Depending on your average credit card sales, the merchant cash advance providers will carefully review your business, receipts of the previous three to six months, and profits, to evaluate the advance amount your business is eligible for. You can easily get 50% to 250% cash advance based on your business’s credit card receipts.
All praises to the prerequisites of the limited credit card score and no collateral requirements, merchant cash advance have proved to be a viable option for businesses. If your business has consistent credit sales and has several years of experience in the market, MCA may suit your business needs. You will get prompt access to working capital!
What’s more amazing is that your business will get the necessary infusion of extra cash, which you have to pay back over time. Furthermore, you do not have to worry about paying a fixed amount, because if your business is performing well, you pay more. Likewise, if the sales are a bit low for a certain month, your business will pay less.
Advantages of Merchant Cash Advance
There are many reasons why merchant cash advance has become an appealing source of working capital. If you are skeptical about this business financing option, here are the most important advantages to keep in mind regarding MCAs:
- Simple Application Process
Unlike other lending options, such as a line of credit or small business loan, applying for a merchant cash advance is quite simple. The process to get access to funding can be done online. All you have to do is complete the application form and submit it along with other supporting documentation online. The supporting documents may include credit cards receipts and history, bank and financial statements, business tax returns or so.
- Fast Funding
One of the biggest advantages of MCA is getting quick access to working capital. Majority of the applications are approved quickly, and business gets fast cash within a couple of days or weeks. In some cases, MCA lenders finalize a decision within hours that has become the primary selling point of this business financing option. Fast funding option comes in handy in case you need money to cover unexpected emergencies.
- No Need For a Perfect Credit Score
When we talk about conventional bank loans, the majority of the commercial lenders require a perfect credit score. If you have a credit score that is less than perfect, you might not be eligible to get funding for your business. On the other hand, you do not need a perfect credit score for merchant cash advance, as the eligibility depends on your business’s future income. Although, MCAs do not help you in building credit for your business, more small businesses or startups are preferring this option.
- No Need For Collateral
Another requirement of commercial lenders is to offer a collateral, i.e., your personal or business belonging in order to get funds. Without it, you are unable to secure a loan. This is because in case you fail to pay off the entire loaned amount or miss monthly payments, the lender will compensate the loss using the collateralized item or property. MCAs do not require collateral as you will automatically repay the amount based on your credit card receipts.
- Flexible Payment Plan
A small business loan has a fixed payment plan and a fixed interest rate. This means that you are bound to pay a fixed amount agreed between you and the lender every month. For some, this option is quite helpful until they are having a slow month. This is where merchant cash advances help small businesses by offering flexible payment plans.
The payments to repay cash advances are based on a flat percentage of your future credit card sales. The percentage or retrieval rate is decided between you and the MCA provider, which remains the same for the entire duration. Alternatively, as they are based on the future income of your business, the payments will adjust to what the business is bringing in.
- High Cash Advance
Lastly, MCA also offers flexibility as it has high borrowing limits. As a small business, you have leeway to gain as much working capital as required. Many people claim that it is only possible at times to get a cash advance of a few thousand dollars. In contrast, some businesses have borrowed nearly $2,500,000 as well. This is where commercial lenders cannot help businesses as they do not think it is a profitable option for them.
How does it provide prompt working capital to cover any business’s overhead?
Several reasons make merchant cash advances better and more useful than a conventional bank loan. As a small business or startup owner, it is important to keep MCA as a financing option for your business. The reason why it has gained an edge over other options is that there are no limits on the money that you need to borrow for your working capital. The process is simpler and getting access to cash is quicker and easier. This is not possible if you are planning to get funds from a bank. Let’s discuss how Merchant Cash Advance provides prompt working capital to cover any business’s overhead.
When it comes to recruiting and hiring new employees, sometimes it becomes a costly procedure but a mandatory one for any business. As a business owner, you would not want to hire wrong people for your business. MCAs can resolve this problem by handing you over quick funds to take care of the hiring process. You need to make sure that the people you are bringing in added value to your business.
Almost every business has to experience unanticipated expenses that may be costly to handle. Unless you have an extra infusion of cash at your disposal, you will not be able to react appropriately to the situation. The fast turnaround time of merchant cash advance will allow you to handle the shortfall, in case if any occurs.
Bills and payroll generation
When your business is not performing the way you want it to, irrespective of the reason, it may create a cash flow gap. This needs to be filled somehow, or your business will be unable to pay bills and payrolls for the month. Applying and getting MCA allows small businesses to cover monthly salaries or bills whenever required.
Advertisement and marketing
For a business, advertisement and marketing are crucial to raise awareness and get a good return. Designing effective campaigns is a costly task, and it requires a hefty investment. You can benefit from MCA and fund your next campaign while getting an excellent return.
When you are running a business, having a problem with cash flow is common even if you operate a large enterprise. The delayed invoice payments, unexpected emergencies, expenses, or seasonal slowdown can hinder your business’s progress. With Merchant Cash Advance, you can handle this temporary issue and take care of your financial responsibilities.
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