Guide to Merchant Cash Advance
What is Merchant Cash Advance?
Are you a business owner and need quick access to funds to sort out a short term capital issue? Well, not worry; you can leverage your credit card merchant to access cash. A merchant Cash Advance is an excellent alternative to the strict credit and long approval process required for a conventional bank loan. Now, to be clear, a merchant cash advance is not a loan, but an advance payment agreement against your investment’s future income.
How Merchant Cash Advance Works
A merchant cash advance service provider gives you funds and then you repay the amount using a certain percentage of your credit card receipts. This could be daily, weekly or monthly. The percentage is known as retrieval rate or holdback rate. It can be anywhere between ten to twenty percent depending on your venture’s credit card sales, the repayment period and the amount being
advanced. The repayment period can be as long as 24 months or as short as 90 days depending on the advance amount.
The exact amount of the advance will be determined by your credit card sales. The service provider will review your business’s receipts over the last 3 to 6 months to ascertain how much you are eligible for. But generally, the amount can range from 30 percent to 200 percent of your credit card transactions. Repayment starts immediately you receive the advance.
How Merchant Cash Advance can help your business
Nowadays when you think of a business loan, most us think of banks. That’s perfect for large corporations and big businesses but it can be unfeasible for individuals and small independent businesses. If you can relate to this situation, then merchant cash advance is for you. If you need money quickly and your business has enough cash flow to make advance payments on a daily basis, then this loan can help. The MCA offers a perfect solution for small businesses to secure funds for growth.
An option for all types of businesses
The MCA is ideal for all kinds of businesses including partnerships and sole traders. It can also be used by beauty salons, entertainment venues, restaurants, clubs, pubs, retailers and more.
Pros of Merchant Cash Advance
- Easy to set up
One of the main advantages of this option is that you can obtain money very quickly and easily. Actually, it can be secured in less than a week! This can be of great help if you need money quickly and you no other alternatives.
- Easy to get
Securing this kind of funding is fairly easy as they have high approval rates. Technically all you need to apply for the MCA is a government ID and at least 6 months of bank statements. But keep in mind that some service providers may require extra documentation.
- Perfect credit is not a must
Most cash advance companies check your personal credit as part of their review process. However, perfect credit is not required. This feature can be important for business owners who have little or no credit information.
- No collateral
Another outstanding advantage of the MCA is that the service providers do not require collateral. Although the provider may take a lien against some of your business’s assets, you do not need to have collateral to get funds. The only mandatory requirement is a good sales record and solid potential for future sales.
Cons of Merchant Cash Advance
- High interest rates and fees
Perhaps the biggest disadvantage of a merchant cash advance is high interest rates and fees. The fees charged by most service providers ranges from 20 percent to 80 percent of the funds advanced. So make sure you know the fees charged by your lender to decide whether not the funding is viable.
- It is a purchase of your of a certain percentage of your future income
Technically, the MCA is not a loan. The lender buys a section of your future income at a certain discount. Though this is convenient when it comes to repaying the loan, it reduces your future revenue significantly.
- Not Regulated
The service is not governed by any laws or regulated by any government body. As such, the fees and interest charged can be high. Keep this in mind when looking for the ideal lender.
- Short Terms
Compared to other small business funding option like bank or credit card loan, the terms of an MCA can be very short.
Merchant Cash Advance Interest Rates & Charges
As mentioned earlier, this kind of funding can be extremely expensive. Some rates can be as high as 80 percent of the cash advance.
Alternatives to Merchant Cash Advance
- Term loan-This is similar to a car or a mortgage loan. You borrow a certain amount which is repaid over a certain period. The rates are variable and can be unsecured to secured. The repayment period can be anywhere between 12 months to 5 years.
- Bank loans; A good option for both large and small businesses. The problem however, is meeting the strict requirements of the banks .You must have a collateral and an appealing credit history.
- Asset Based Loans-This is where you use your business’s assets to obtain funding. This is ideal for firms that have considerable asset value and don’t want MCA. The rates are usually lower than that of a merchant cash advance.
Companies/businesses that offer Merchant Cash Advance services
- Beyond Merchant Capital -https://beyondmerchantcapital.com.au
- Merchant Cash -https://merchantcash.com.au
- Aaafin -http://www.aaafin.com.au
- Adyen.com -https://www.adyen.com