Even though Merchant Cash Advances (MCAs) are regularly advertised as a lending solution, the truth of the matter is that they aren’t technically a loan – at least not in the traditional sense.

Even though Merchant Cash Advances (MCAs) are regularly advertised as a lending solution, the truth of the matter is that they aren’t technically a loan – at least not in the traditional sense.

 

With an MCA you are instead receiving cash in hand in exchange for a specific percentage of the credit card and debit card sales you process during a daily block of time (usually with an added fee on top).

 

These kinds of funding solutions can be fantastic for entrepreneurs looking for quick access to cash and capital, especially for entrepreneurs that want to gain access to this kind of capital without putting up collateral (even if their credit scores are less than picture-perfect).

Quickly Highlighting the Pros and Cons of MCAs

Pros

• Almost instant access to the funding that you need
• Simple and straightforward application/approval process
• Do not need picture-perfect credit to be approved, either
• Perfect for all different kinds of businesses, as well as all different kinds of business purposes

 

Cons

• You’ll inevitably pay higher fees with MCAs compared to traditional lending opportunities
• There isn’t quite as much flexibility to bounce from one MCA provider to another
• You’re going to see a daily deduction out of your credit/debit card receipts that will inevitably reduce your cash flow

 

Who is Best Suited to Take Advantage of Merchant Cash Advances?

 

Business owners of all types are (understandably) sensitive about cash flow, looking for ways to improve the amount of money they have coming into their business compared to the amount of money they have going out over a certain block of time.

 

MCA opportunities give entrepreneurs an opportunity to improve their cash flow situation (oftentimes significantly) without having to pony up any collateral, without having to have been in business for years and years, and without requiring business owners to have picture-perfect credit, either.

 

Instead, MCA opportunities give entrepreneurs access to the quick cash and capital they need to build and grow their businesses and to stabilize their businesses without putting all kinds of obstacles in front of business owners.

 

Businesses that make a significant amount of their revenue through debit card and credit card payments are also going to be prime prospects for these kinds of financial services. Restaurant and retail locations, for example, usually do quite a bit of business with these payment types – payment types that are perfectly suited to merchant cash advances.

 

Understanding the MCA Application Process

Unlike traditional lending opportunities the application and approval process for MCA opportunities is simplified and streamlined.

 

Thanks to the fact that your MCA is going to be paid back daily basis through a portion of your debit and credit card sales that the majority of MCA organizations out there are only going to be looking at the amount of money you process through these payment methods and little else.

 

Some companies in the industry are going to ask about your credit score, credit history, and bank statements that can be provided – but most are only going to zero in on how much money you take in through plastic every day.

 

On top of this, the overwhelming majority of MCA options are available through online based lenders. This means that the application process can be taken advantage of and move through at any point in time, day or night, 24/7. Most organizations also have an instant or nearly instant approval process that lets you know whether or not you’ve been given the green light for the MCA package you are after.

 

Before you fill out the application, however, you want to make sure that you have:

 

• Your driver’s license or government issued ID
• A voided bank check
• Banking history/banking statements
• Credit score and credit history information
• Business tax returns (as applicable)

 

… But most importantly you’ll need to be sure that you have your most recent credit/debit card processing statements on hand to get the ball rolling with an MCA package.

 

How Will This MCA Financing Package Actually Work?

 

Merchant Cash Advances are pretty simple and straightforward to understand.

 

After you are approved for this kind of financing package you will be provided with a “lump sum advance” that you can use flexibly to build, grow, and stabilize your business. In return, a small portion of your daily credit and debit card sales are going to go towards paying off this financing – usually with some smaller fees attached as well.

 

All of this is handled through the industry-standard Automated Clearing House (ACH) banking protocol that works a lot like a direct deposit does. Every day, a percentage of your credit card and debit card sales will be remitted to the MCA financing service – and every day a little bit more of your lump-sum financing package will get paid off.

 

MCA Costs Can Get Pretty High

 

While a Merchant Cash Advance financing package can offer you almost instant access to the funds and capital that you need when you need it most, it’s also going to have some of the highest interest rates and fees attached to this cash as well.

 

Typical interest rates for MCA packages can sit at anywhere between 1.14 and 1.48 (on average), a factoring rate that you then have to multiply your total loan amount to so that you know exactly what you are going to have to repay in the long term.

 

This basically works out to an APR that starts at around 15% but can very often spike up as high as triple digits – and stay there for a while, making this a very expensive proposal to be sure.

 

Combine all of that with the fact that the overwhelming majority of MCA offers are repaid over a block of time between eight and nine months (sometimes stretching out to as far as 18 months, however) and you might not look at MCA offers the same when you start to crunch the numbers.

 

You’ll need to know exactly what you’re getting into before you sign on the dotted line for sure. But there’s a reason why so many entrepreneurs take advantage of these kinds of financial packages, and that’s because they offer quick cash, flexibility, and cash flow stability you’ll have a tough time finding anywhere else.