Merchant Cash Advance Guide: Why Would I Want One?

For companies who find the bulk of their transactions paid by credit cards, a merchant cash advance (MCA) is a popular form of financing. Although some may refer to this financing as an MCA loan, it is technically a cash advance using your monthly total of credit card transactions as collateral.


With an MCA, the focus will be on your sales and credit card receipts. With a predictable and stable flow of sales and payments, a lender will look toward the feasibility of your business paying back the advance rather than looking solely at your credit score. Because of the ease of approval, many small businesses turn to an MCA when they need access to some quick cash. Many lenders will accept companies who have been in business for at least a year, but they should also have at least $2,500 in credit card transactions.


An MCA is often more costly than applying for a traditional term loan, yet rates can be better than choosing to finance purchases with a credit card. Also, the repayment plan works well with small business who may not be able to consistently shoulder the burden of a monthly term requirement. MCA’s take their payment directly from the credit card transactions. The lending contract establishes the percentage taken, as well as if it’s a daily, weekly or monthly total. There may be additional fees established, as well as an interest rate on the initial payout.


If you are considering a merchant cash advance, remember these aren’t be the best options for business where customer’s aren’t consistently paying with credit cards. Retail merchants, restaurants and service businesses are generally good candidates for MCA financing. Before signing up with a lender, thoroughly check the small print and details of the lending contract. While it is viable form of financing, less-than-reputable lenders will hide additional fees or contract terms from the unsuspecting client. Check with multiple lenders and compare interest rates and contract terms.


A merchant cash advance usually provides the money within a single business day, making it one of the fastest forms of small business financing. The repayment occurs over time, and the nature of the percentage draws work well with the potential ups and downs of business sales. Because it can be costly, it is advised that you use an MCA as a short term solution to cash flow problems. Use the funds wisely, and work to increase your revenue stream for future needs.

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