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Your Top 5 Merchant Cash Advance Questions Answered

Matt Smith
19th Jul 2019
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Small business owners know how challenging it is to obtain funding for business operations. Fortunately, the recent trends in the business industry provided an avenue for entrepreneurs to easily secure financing. For business owners needing quick access to capital, a merchant cash advance might be the one for you.


Compared to traditional business loans, a merchant cash advance (MCA) provides flexibility and higher chances of approval. However, not a lot of people are aware of MCA and its many benefits. If you’re not familiar with merchant cash advances, here’s everything you need to know.


What is an MCA and How Does it Work?

A merchant cash advance is not your typical loan; in fact, it’s not a loan at all. As the name suggests, it’s an advance against your business’ future credit card transactions.


How It Works

Once approved of an MCA, the lending company will give you a lump sum. You can pay it back by automatically deducting a percentage of your credit card sales. The percentage can range from 5% to 20%, depending on the amount of your advance, the repayment period, and the rate of your credit card sales. Repayment terms can be as long as 18 months or as little as 90 days and it begins once you receive the funds.


The size of your advance depends on your company’s average credit card sales. Lenders generally give up to 50% to 250% of your credit card transactions. But first, they have to see your credit card sales over the past three to six months in order to determine how much you’re eligible for.


What are the Benefits of a Merchant Cash Advance for Small Businesses?

There are many reasons why business owners apply for an MCA. If you’re looking to apply for a merchant cash advance, you’ll be sure to enjoy the following benefits:


High Chances for Approval: Unlike traditional loans, business owners applying for an MCA get approved more often because collateral and credit scores are not a major factor.


No Hidden Fees: Another benefit of MCA is that there are no hidden fees. Additionally, you don’t have to pay for interest because an MCA is not a loan.


Fast Funding: Lenders don’t require credit checks with an MCA. Instead of looking at your credit, lenders will check your income stream to determine the level of risk and reliability. Without collateral and credit checks, the entire application process takes 24 to 48 hours max.


Credit is Not Necessary: Most traditional lenders require a good personal and business credit score to qualify for a loan. But with a merchant cash advance, strong credit is not a major factor. Lenders are more concerned with average credit card sales, the number of years in business, and your business’ current debt.


No Collateral Needed: You don’t have to pledge any personal or company asset in order to qualify for a merchant cash advance.


No Restriction with the Use of Funds: The funds you receive can be used in any way you seem fit, as long as it’s for the benefit of your business.


Who Qualifies for a Merchant Cash Advance?

A merchant cash advance can greatly benefit your business, but it’s not for everyone. If you need quick access to working capital and most of your sales are paid through credit cards, then you can use a merchant cash advance to finance short-term needs. You can use it to pay for unforeseen business expenses, debt, inventory purchases, and as additional working capital.


It’s also a great option for companies that don’t qualify for traditional business loans. Those have little or no collateral; bad credit scores, and limited business history. Lenders offering a merchant cash advance make it easier for small business owners to apply and get approved.


What are the Best Industries to Obtain an MCA?

Ideally, the best companies that qualify for an MCA are B2B businesses where the majority of their transactions are through credit cards.

Construction

Restaurants/Bars

Doctor/Medical Practices

Hotels/Lodging

Beauty Salons/Spas

Retail Stores

Auto Repairs and Sales

Landscaping Services

And More!


What are the Alternatives of a Merchant Cash Advance?

Merchant cash advances have higher APR compared to traditional loans. If the cost of an MCR is too much for you and you’re not short on time, there are alternative financing options for you.  


Business Term Loans

A business term loan is the first thing that comes to mind when scouting for business loans. It works similar to a car loan; you borrow a lump sum of money, which you can repay over a predetermined repayment term – usually within one to five years. Interest rates can be either fixed or variable and the type of loan may be secured or unsecured. The APR of a business term loan is generally more favorable than a merchant cash advance of a business credit card. However, you might be asked to put up collateral for large loan amounts.


Business Line of Credit

 With a business line of credit (LOC), lenders assign you to a predetermined credit limit where you can withdraw funds from as needed. Just like a merchant cash advance, a LOC offers flexibility when it comes to repayment. You only have to pay for the amount of money you’ve withdrawn plus interest – not the entire credit limit. Furthermore, you have the option to withdraw the funds or keep it for months. A business line of credit is a preferable alternative to a merchant cash advance for many business owners.


Apply for a Merchant Cash Advance Today!

A merchant cash advance is a great option if you need quick access to capital. When applying for an MCA, you need to partner with a lender you can trust.


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