A Merchant cash advance cannot be called a loan in technical terms. It is a business advance that is given in expectation of a portion of the future credit card sales volume of the business. However, since it is available quickly, many small businesses tend to take advantage of this.
The criteria for qualification are much easier in Merchant Cash Advanceswhen compared to bank loans. The credit card receipts that you may have collected over a month should be enough to convince the MCA lender to approve your advance. However, the interest rate and fees that you need to pay are quite high in MCAs as compared to the other financing options. You need to therefore make sure you understand the terms properly before you submit your application for advance.
Many banks and companies offer MCAs today. If you are own a restaurant or any other retail store, you may even be contacted directly by a couple of private MCA lenders who get your details through Merchant Cash Advance leads. Such leads are offered by professional lead generating firms, according to the requirements of the lenders.
The lender that you choose to borrow your merchant cash advance from, should offer terms that seem favorable or suitable to you. It is not advisable to say yes to the first lender that contacts you through Merchant Cash Advance Leads. It is necessary to do some research, check out the authenticity of the lenders and compare the terms before deciding on a lender. You may even want to talk to a few people who have borrowed advances from them.
How it works
Merchant Cash Advances are very unique when compared to the other types of loans. This is how the procedure goes:
- Upon submission of application for Merchant Cash Advance, the lender may want to check out the documentation you have provided along with the application. This might include your bank statement and your daily credit card receipts.
- Once the lender is convinced that you will be able to repay the amount within time, you will have to agree upon his conditions pertaining to the advance amount, the term of advance and the payback as well as the holdback amounts.
- After the negotiations are through, the advance amount will be transferred to your bank account.
- The credit card swiping machine is set up so that whenever a credit card sales transaction is made at your POS, a portion of it will be automatically transferred to the lender's account. The more credit card transactions you have, the faster you can repay your MCA.
Many MCA lenders are establishing their presence online today. This makes it even faster for borrowers to obtain this advance, in a hassle-free manner.
Loan Costs and MCA repayment terms
The interests and costs amount up to 20 to 40% of the amount that you have borrowed as merchant cash advance. Holdback rate refers to the percentage of the credit card bill amount that gets credited to the lender's account upon every transaction. It can range anywhere between 10 and 20%. Payback amount however refers to the amount that you pay back against the entire advance.
The costs and repayment terms of MCAs vary from one lender to the other. It is better to check these up thoroughly before signing the agreement.
MCA – isit right for you?
If your business is over a year old and has a high volume of daily credit card sales, you can easily qualify for an MCA. You can use the advance amount to purchase inventory, invest short-term capital, buy equipment, renovate store or expand your business. This gives you access to quick and hassle-free capital within the shortest span of time. It doesn't usually matter if you have bad credit.
Documentation required for MCA
The application process is quite simple and the terms are fairly negotiable in case of merchant cash advances. The documentation that you may have to submit would include
- Bank statements for the previous six months or an year
- Daily Credit card receipts for about one to three months
- Details about your business and your social security number (you will have to fill these details in the application form)
Within about 24 to 48 hours your application will be approved and the money will be deposited into your bank. The repayment begins automatically through the merchant account.
MCA – The Pros and Cons
Like other forms of loans, Merchant Cash Advances come with their own set of benefits.
Suffices Emergency Cash Requirements
If your business is in need of some immediate cash MCA would be the perfect choice. If you have provided all the required documentation, you can get the money within one or two days.
Easy to Qualify
The documentation required is very minimal in the case of MCA. A government ID proof and bank statements for the past few months should be enough to get your application approved.
No need for perfect credit score
The best part about MCA is that it is also available for those who do not good credit scores. Credit score is not a requirement here.
Merchant cash advances are given in anticipation of a portion of your future credit card sales. It needs no collateral from your side.
High costs and Rates
As a loan product Merchant Cash Advance is very expensive. The costs and rates associated are very high and you may end up paying back anywhere between 9 to 50% extra.
Not for long term
Merchant Cash Advances are meant for 3 to 15 months only. If you end up using for long term, you may end up draining your business funds.
Timing is what matters the most in business. It is only MCA lenders that can give you the cash that you need within time. All you need to do is do your homework and go through the terms carefully before entering into the agreement.
Author writes for Heritus Lead Transfer LLC. A Merchant cash advance lead generation company in New York, US. Contact Heritus if you need Merchant Cash Advance Live Transfers.