When to Consider a Merchant Cash Advance?

If you are running a business, you must be well aware of the fact that you can run out of cash at any point of time. Businesses can opt for business loan. However, in order to get approved, it takes some time. However, if businesses need some urgent capital, they can go for other financing option like merchant cash advance (MCA) or business cash advance.

business cash advance

Merchant Cash Advance

MCA can be considered as a kind of an advance that is given against the future credit card sales receivable.

business cash advance

MCA – Best Solution

A business might need some extra cash in order to purchase some things for their inventory. Insufficient fund can cause disturbance within the business operation. And when a business is not able to operate smoothly, pressure starts to mount up.

Taking up business loan is ideal but it comes with a lot of obligations, such as submitting collateral. However, a business cash advance, also known as MCA doesn’t require any such terms. Moreover, the loan gets approved and money gets transferred quickly.


How the Merchant Cash Advance Works?

With numerous businesses opting for MCA, it is very crucial to know how the merchant cash advance works. Once one is able to understand MCA, one can come to know if it would be suitable for their business.

When a business opts for MCA, they receive a lump sum of money ranging from $2500 to $250,000 of capital. The business cash advance amount gets transferred within few hours to days. The amount is provided by the online financing companies. Although the process might seem to be a simple one, it is not like that. The catch comes with the repayment issue.

The borrower needs to sign an agreement with the merchant cash provider. The provider checks out whether the borrower is having a good credit card sales history or not. However, MCA is one of the expensive financing options available in the market.

Although, the application process for the business cash advance is very simple; it comes with certain terms and conditions. For instance, businesses need to pay a certain percentage of their future credit card sales to the MCA provider. As soon as one starts to get the money, the business needs to repay the amount. Even though the time period is not fixed; still, the percentage of the daily credit card transaction that needs to be paid is fixed.

Advantage and Disadvantage:

The biggest advantages of MCA are:

  • Easy approval process and don’t need a lot of paperwork.

  • Credit score doesn’t bother the MCA providers very much.

  • Business cash advance don’t require year of proven profitability in order to qualify for the loan.

The disadvantage of MCA is that business would be paying the amount of their credit card sales on daily basis. Hence, cash flow will be interrupted. The amount might vary day to day as it will depend on the amount of money earned. Lastly, the whole amount is paid back, the withholding rate remains same.

Businesses should go for MCA if they don’t have any other financing options. They should only go for this loan if they can survive with limited cash flow during the repayment period.