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How to Know a Merchant Cash Advance Is Right for Your Business

iCrowdNewswire   Sep 25, 2020  1:57 PM ET

If you’re in need of immediate cash flow or working capital, you might want to apply for a merchant cash advance. MACs are not traditional business loans. They are cash advances that company owners can pay back in exchange for a certain portion of their future credit sales or transactions. Applicants are quickly approved in just a couple of days, and, to apply, you need very little paperwork.

What Are MCAs?

Many people confuse a merchant cash advance with a loan, but, technically, MCAs are different than loans. If, as a business owner, you receive an MCA, you will need to offer part of your debit and credit card sales in exchange. There’s also an additional fee that all MCAs require.

With the help of a merchant cash advance, your company receives upfront working capital, but you must exchange it for some of your future credit card sales. There are many cases in which credit card processing companies collaborate with merchant cash advance providers.

Compared to a standard loan, the risk of offering an MCA is calculated and evaluated differently. Both your daily and monthly sales that are processed via your business’ credit card are assessed. A merchant account, together with credit scores, are also taken into consideration. These factors determine how quickly a client can repay the advance.

The cost of an MCA is normally higher than a classic loan because it doesn’t rely on interest rates covered during a specific period of time but rather on factor rates. A merchant cash advance is a short-term type of loan that helps businesses to acquire short-term working capital.

When Should Businesses Use an MCA?

There are several situations in which an MCA could be good for your business:

Is a Merchant Cash Advance Suitable for Your Business?

MCAs provide plenty of benefits for all companies, especially for small businesses, but that doesn’t mean that all firms should apply for this kind of loan. A merchant cash advance might not suit all types of companies out there.

One of the most important perk that all business owners enjoy is an MCA’s flexible payment schedule. An applicant that’s granted this loan will only have to pay it back when his or her company makes a sale that’s processed via their credit card.

How a Merchant Cash Advance Works

An agreement must be signed by both the MCA provider and the business owner. The document will feature aspects such as the payback amount, the amount of the advance, the term of the advance, and the holdback. Once all these elements are established, the provider transfers the advance to the company’s bank account. At the same time, the MCA issuer receives a percentage of future credit card receipts.

Every day after that, the agreed percentage of the business’ daily credit card sales will be withheld so that, in time, the MCA will be paid back. This part of the process is also known as a holdback. These holdbacks will go on until the client covers the entire MCA.

An MCA doesn’t involve collateral requirements as a traditional business loan would. This is due to the business owner’s access to his or her own merchant account.

You can repay this loan with a percentage of your company’s daily balance through your merchant account. So, a higher number of business transactions will enable you to repay the advance quicker. If one day or during a certain period, your sales are lower, the holdback from your merchant account will also become lower.

The method of the merchant cash advance works better, and it is a popular one because if you encounter a period of slow business, the loan provider will follow your cash flow and adjust the payback.

Pros and Cons

Compared to regular loans, MCAs come with a wider range of advantages and a more relaxed payment method. Here are some of the advantages and disadvantages.



How Can a Company Use the Credit Received from an MCA?

There are several best uses that you should consider before applying for a merchant cash advance. You should ask for one if your business finds itself in one of the following scenarios:

How to Apply for an MCA

You can get approved in just a few hours, but there are also cases that last up to a few days, based on the required paperwork and some other necessary details. Once you are approved, you will receive the funds in your company’s bank account within two days.

Compared to a traditional loan, an MCA’s application process is less complicated. Here are the steps you need to take:


Although a merchant cash advance offers plenty of perks, you still need to weigh all of their pros and cons before deciding if the financing option is right for you.


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