What is a Merchant Cash Advance?
What is a Merchant cash advance? it is a new innovative alternative business financial way for a business to acquire financial funds. Also known as business cash advances this financial option allows the business to have money in return of a percentage for future credit card sales. Allowing you to obtain an advance of funds that will regularly flow through the business merchant account.
A merchant cash advance (MCA) is not a loan, but rather an advance based upon the future revenues or credit card sales of a business. A small business can apply for a Merchant cash advance and have an advance deposited into its account fairly quickly.
Merchant cash advance providers in the UK evaluate risk and weight credit criteria differently than a traditional banker lender might. An MCA provider looks at the daily credit card receipts to determine if the business can pay back the advance in a timely manner. Basically, the small business is selling a portion of future credit card sales to acquire capital immediately for your business.
Rates on a merchant cash advance are typically higher than other small business loan options provided by mainstream lenders. An Merchant cash advance provider will often approve an advance for a business that might not qualify for a business loan, but has a steady influx of credit card payments. Any business owner considering this option should make sure he or she understands the terms being offered so they can make an informed decision about potential ROI.
How Does a Merchant Cash Advance Work?
It works through an agreement set by the provider and the business, once the agreement is set the outlay of the merchant cash advance such as the payback, advance amount, and holdback percentage will be discussed and an agreement between both parties will be made.
When the agreement is made, the advance is transferred to the business’ bank account in exchange for a future percentage of receivables or credit card receipts.
After the agreement has been made you business agreed on the percentage of revenue through credit card purchases are withheld according to agreed the percentage. The withheld percentage will pay back the merchant cash advance borrowed. This practice will continue until the advance has been paid. Access to a business owner’s merchant account eliminates the collateral required for a traditional small business loan.
The repayment percentage is a daily balance from the account, meaning that the more payments made (transactions) the faster the advance is paid off. This rule also applies if the business has fewer transactions in a particularly slow term, the balance will still be getting paid but within less time. Meaning the business pays back the advance that is tailored directly to the business intake of merchant cash deposits.
What happens with the repayment costs on a merchant cash advance?
A business that uses a merchant cash advance, according to several MCA provides, may pay back 10%-20% (or more) of the amount borrowed. This percentage is frequently displayed as a factor rate, which would equivalently be 1.20 – 1.40.
NOTE: There’s a difference between the holdback amount a small business pays every day (as a percentage of their receivables) and the repayment amount for the entire advance. There could, for instance, be a holdback of 10%, and a repayment of 20%, so it’s important for the business owner to understand the distinction.
Is a Merchant Cash Advance Right for My Business?
Merchant cash advance is perfect for the business wanting quick access to funds if you are looking for capital contact us today via our form here. Credit requirements are typically less than a small business loan, it could be an option for a business that does a lot of credit card transactions every month but has a weak credit profile.
Fill out the contact form to get in touch, our representatives are experienced in merchant cash advances so are here to talk you though the process. Helping business every day in receiving a merchant cash advance.