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Is a Merchant Cash Advance Best for your Business?


A merchant cash advance is an advance offered to business owners who accept credit card payments to obtain a cash advance on the funds flowing regularly through the business account. A merchant cash advance is not a loan but an advance based on the future revenues or credit card sales of the company. A small business owner can qualify for a merchant cash advance and once approved, will receive the money in their account quite quickly.

The application process is as stringent as if you were applying for a loan as the credit providers will evaluate risk and credit history as well as things like daily receivables and credit card receipts to ensure that the business can pay the money back. The business is selling a portion of the company’s future revenues or credit card sales to receive the money immediately.

The rates for these types of advances are usually higher than other small business loans, although merchant cash advance creditors are sometimes more lenient in the approval process and may approve a cash advance even if you do not qualify for a business loan. If you are a business owner applying for a cash advance, it is important to know the terms of the agreement so you can make an informed decision for the success of your company in the future.

How Does a Merchant Cash Advance Work?

A small business owner will apply for the merchant cash advance and, once approved, must agree to the terms of the contract, i.e., the advance amount, the payback amount and interest rates. Once everything is official, the funds will be transferred into the business’ account in exchange for a future percentage of revenue or credit card receipts.

Once the cash advance is in effect, a percentage of the company’s daily revenue or credit card receipts are held back each day to pay back the MCA. This is called a ‘holdback’ and will continue until the advance is paid in full. Because the MCA provider has access to the business owner’s merchant account, no collateral is required, thus differentiating it from a secured loan. What’s convenient about this type of loan is that the repayment is based on a percentage of the daily balance, so the more you earn a day, the faster you pay back the advance. If the transactions for the day are lower, the percentage will, therefore, also be less.

Is a MCA Right for You?

A Merchant Money Cash Advance is a suitable option when a business needs cash fast but has the adequate daily cash flow for repayments. It is also the ideal alternative to a business loan as MCA providers are usually more lenient as long as you do a lot of credit card transactions every month. The best advice would be to weigh out your options, seek professional help and understand the terms and conditions of any cash advance or loan before proceeding.

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