A merchant cash advance (MCA) is a tool that you can use as a business owner to receive an advance on funds you haven’t yet earned. To get this advance, you have to accept credit cards for the products or services you offer or have another payment stream that flows into a merchant account.
It’s important to note, the merchant cash advance isn’t a loan. It is an advance on your business’s future sales and revenues. You can usually apply for and receive the funds from a merchant advance fairly quickly.
A Basic Overview of How an MCA Works
With this type of cash advance, you (the business owner) are selling part of your future sales to receive a fast advance on your capital. Lenders who offer these advances operate a bit differently in the way they asses risk compared to a traditional bank. Usually, a provider is going to determine risks based on day-to-day credit card sales for the business. If you are able to repay the advance within a set time period, you can qualify for this advance.
Typically, a merchant cash advance rate will be slightly higher than other business loan options. That’s because most companies seeing this type of advance have already been turned down for a more traditional line of credit. However, you can prove you have a healthy stream of payments via credit cards, which is going to allow the MCA lender to provide you with the funds needed.
Is an MCA a Good Option for Your Business?
If you need fast access to funds and have good cash flow via your merchant accounts, and you can justify the higher rates that accompany the advance, then the MCA can be a great option. Also, credit requirements are often less than the requirements for a small business loan, which makes the MCA useful for your business if you deal with high volumes of credit card transactions, but you have a low credit profile.
Be sure to consider your options carefully and take the time to find a legitimate and honest provider of the merchant cash advance. By doing this, you can feel confident that your advance is going to benefit you and your business, rather than creating negative effects that may interrupt your operations or cash flow. Being informed is the best way to know for sure if the MCA is a smart move for your business.