What is merchant cash advance: Uses, How does it work and Benefits

Business owners who accept credit card payments or has other payment or receivables streams to obtain an advance of the funds regularly flowing through the business’ merchant account are allowed under Merchant cash advance.

A merchant cash advance or an MCA is not a loan, but rather an advance based upon the future revenues or credit card sales of a business. Business with small size can apply for an MCA and have an advance deposited into its account fairly quickly.

Merchant cash advance providers evaluate risk and weight credit criteria differently than a traditional banker might. The provider also looks at the daily credit card receipts and determine that can a business 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.

Uses of Merchant Cash Advance Work

 Top 5 Uses for your Merchant Cash Advance:

  1. Money investment in work generating ongoing revenue

This could be anything from a new marketing campaign to a store expansion; if it increases sales and cancels debt, don’t discount it.

  1. Deposit the money in an interest baring account 

If you don’t know what to do with the advance right away; don’t fall back on bad spending habits. Open a bank account and start earning interest. That way, the money stays available for emergencies and you can recover faster while avoiding debt.

  1. Pay off high interest credit cards

Stop paying interest rates and fees for credit. Use the borrowed money to pay your credit cards off and put the cash toward paying off the advance faster.

  1. Use the funds for payroll and vendor services

Every business owner understands the stress of making sure all of their ends are covered and it also give you the means to cover your payroll and expenses when your profit margin falls short.

  1. Avoid the penalties and late fees associated with operating costs 

Bridging the gap between a short fall is difficult; especially if you’re dealing with collections and past due accounts. A merchant cash advance help you with overhead costs until your revenue increases and also help in pay off utility.

How Does a Merchant Cash Advance Work?

 MCA provider and small business made an agreement regarding the advance amount, payback amount, and holdback percentage. The advance is transferred to the business’ bank account in exchange for a future percentage of receivables or credit card receipts after an agreement once made.

The daily revenues or credit card receipts are withheld to pay back the MCA and it is called “holdback”. It will continue until the advance is paid in full. The collateral required for a traditional small business loan can be eliminated to a business owner’s merchant account.

The more transactions a business does, the faster they’re able to repay the advance. Transactions should be made lower on any given day, the draw from the merchant account will also be less. During the times of slow business, the business’ payback is relative to their incoming merchant account deposits.

Benefits of Merchant Cash Advance

  1. Applying is fast and easy

Merchant cash advances are faster to obtain than bank loans simply because there’s less paperwork, making the process far less bureaucratic than a bank loan. Generally, within a week cash advances are provided, some providers like Merchant Lender, even offer same day approval.

  1. Bad credit isn’t an issue

Unlike bank loans, merchant cash advances have higher approval rates. Many businesses that can’t qualify for a business loan, do qualify for a merchant cash advance. For example, Merchant Lenders has a 95% approval rate, making it very efficient for you to get the funds you need in order to reach your business objectives.

  1. No collateral is necessary

Unlike other credit loans, there is no need to risk your home or other assets for a cash advance.

  1. Repay only on the money you make

A cash advance is repaid through a portion of your business’ daily credit/debit receipts. This means the exact amount of money paid back is based on a fixed percentage of your sales until the advance is paid back in full. There is no fixed due date or fixed payments for paying back the advance.

  1. No restrictions

You can use the money from a cash advance any way you choose, whether it’s for inventory, renovations or repairs, you have the freedom to manage your business’s cash flow as you need.

On the whole, while the commercial loan is a really important possible funding source, in some cases the merchant cash advance will be preferred due to the benefits mentioned above.

By | 2018-01-09T12:30:25+00:00 November 11th, 2017|Business Loan|0 Comments

About the Author:

Pulkit Jain is the founder of LegalRaasta – India's top portal for registration, trademark, return filing and loans. Pulkit is a veteran CA with over 10+ of experience.

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