What Are Some Must-Know Facts About Merchant Cash Advance Financing?

If you are a small business owner who is looking for fast funding options, you may have considered merchant cash advance funding. Let’s take a closer look at this popular funding option and how it can help your business grow and sustain profitability.  

Merchant Cash Advance – An Alternative Funding Option

During the business cycle, there may be multiple points at which you will require immediate cash to cover a short-term expense. Merchant cash advance financing comes in handy at these times, especially as traditional financial institutions will always pursue low-risk projects. MCA funders evaluate the risk and credit criteria differently. Therefore, it remains a good option, especially for small businesses with inconsistent sales or those that don’t possess capital assets such as the property, which can be used as collateral.

What Is a Merchant Cash Advance?

A merchant cash advance for small businesses, also known as a business cash advance, offers an advance against future sales. In other words, a lump-sum payment is given to a small business that has a steady volume of overall sales. The amount is agreed upon in exchange for a percentage of future revenues or sales. MCAs are friendly to small businesses as you can get your money fast, and it is easy to qualify. Merchant cash advance funding is not usually based on your credit score or collateral, and these will not determine your eligibility for funding. These advances are specifically given to existing businesses that have cash requirements for acquiring new stock, relocating to a new location, or to meet payrolls, etc.

Merchant Cash Advance Benefits

A merchant cash advance for small business is issued very quickly, usually within four hours or up to three business days, with no cumbersome paperwork. Fund providers look at overall sales receipts to determine whether you will be able to repay. They are usually interested in your sales history rather than credit history. Flexible payments are another advantage. Even if your repayment plan is based on daily sales, you have the flexibility to adjust the amount, in case your sales are low. It covers risks such as fluctuations in sales or seasonal sales. The amount received as MCA can be used to cover any business expenses you choose. Merchant cash advance financing is an unsecured funding method, where you don’t have to provide collateral such as business equipment, inventory, or property. This means your assets are not forfeited even if the sales are low or you fail to repay. 

Cost Structure of Merchant Cash Advance Financing

The repayment cost structures are flexible. MCAs can be structured as split withholding repayment or lock-box repayment. With regard to split withholding repayment, the funder splits each day’s revenue with the merchant. Whereas, in the lock-box repayment method, the deposits are put into funder’s account and shared by merchants and financiers, which makes the repayment flexible. The repayment of advance is based upon a percentage of the weekly or daily balance in the merchant account. The more transactions a business does, the faster it will be able to repay the advance. Thus, the repayment is tailored to suit the flow of your business transactions. 

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