In the last five years, it has become increasingly difficult for business owners to access capital through banks, in fact approximately 80% of all small business that apply for loans through traditional lending institutions get denied. In order to deal with this shortfall, the Merchant Cash Advance (MCA) was developed in order to help small business owners fund their business quickly and seamlessly. The key characteristics of a Merchant Cash Advance include a limited amount of paperwork and quick access to cash. A Merchant Cash Advance is a type of funding that is not a loan, rather a purchase of a fixed dollar amount of a business’s future credit card receivables. The Merchant Cash Advance provider purchases a specified dollar amount of your business’ future credit card receivables at a discount. Your business, instead of paying one large fixed monthly payment until a set maturity date like a loan, remits a fixed percentage of its daily credit card revenue automatically until the specified amount of purchased receivables is remitted in full to the MCA provider.
Funding from a Merchant Cash Advance can be used for any business need, including:
- Inventory financing
- Business equipment financing
- Business expansion loans
- Financing for advertising and marketing
- Financing to improve working capital
- Benefits of an MCA
In addition to the much easier method of obtaining a loan from an MCA provider than from a bank, a Merchant Cash Advance has a lot of incentives when it comes to small business financing:
No Credit or Collateral at Stake. A Merchant Cash Advance is a safe approach to accessing cash. Whereas commercial loans can affect a business credit rating, a Merchant Cash Advance is a sales transaction and therefore stays off the credit report. Merchants who take a cash advance also avoid the risk of losing collateral, a common issue in commercial loan default situations.
Easy Application and Collections Process. Merchant Cash Advance funding is a painless, straightforward process from start to finish. Commercial lenders evaluate financial statements, tax returns, and business plans. Merchant cash advance providers consider only two simple criteria: monthly credit card returns and length of time in business. Typical minimums are $5000 in monthly credit card sales and as little as a few months in business.
Quick Access to Cash. Because there is so little paperwork to process, Merchant Cash Advances offer a fast turnaround. While commercial loans can take weeks or even months to process, MCA funding is typically available within a few days of submitting the application. This instant response can be an important asset if the business needs immediate funding to pay off a creditor or seize an unexpected opportunity.
High Approval Rate. MCA’s rely on real business performance rather than credit to evaluate applicants. This pragmatic approach allows any stable business to qualify for an advance. Advance amounts typically depend on the business average monthly revenue in the previous year.
Revenue-Based Payback. "We get paid only when you get paid," claims a leading MCA provider. The slogan captures one of the most compelling advantages of a merchant cash advance over a commercial loan. While the loan requires a fixed monthly payment, MCA collection amounts fluctuate based on the merchants sales volume. In flush months, the MCA retrieves a higher monthly sum; in lean times, the MCA scales back its share proportionally. This percentage-based collection policy allows the MCA to support the business success rather than draining its funds.
Interested in learning more? Our expert funding advisors are ready to learn about your business needs to determine if a Merchant Cash Advance is right for you.