The merchant cash advance (MCA) is a financing vehicle for business. We will learn a little bit more about how it works and the conditions under which it is viable for you. The lender of the MCA determines the amount they will send you after an assessment of the daily receipts from your credit/debit card transactions.
What Are the Positive Attributes of the Merchant Cash Advance?
First of all, you have to decide whether or not you qualify for an MCA. Typically, reserved for small businesses that don’t meet the requirements for other types of financing. Whether the latter depend on credit score or collateral.
Another attribute your business should possess is fluctuating revenue that makes other financing types difficult to qualify for. Since the merchant cash advance mandates that the lender take a percentage of your daily receipts. It is tailor-made for companies with unpredictable revenue. In seasons of low sales, the MCA doesn’t place an undue burden on your cash flow/capital. In seasons of high sales, you still are only giving the agreed-upon percentage to pay off the advance.
A Few Terms to Know About Merchant Cash Advances
You should understand the factor rate involved with MCAs; basically, it is the compensatory aspect that takes the place of the interest rate used in traditional loans. Although it varies, the range is between 1.1x and 1.5x. Another attribute of interest is the holdback percentage; which is how much you pay daily towards the cash advance. The range is wide and can be expected to land between 8% and 30%.
The final two terms of interest are the amount of cash vs the factor rate and the expected annual percentage rate. The first will be calculated once you sign the contract for the merchant cash advance monetary value desired and granted. The expected APR runs between 30% and 150%. Which is to be expected for a “loan” with such a short repayment period.
For more information on merchant cash advances and finance topics in general, don’t hesitate to contact Ideal Financial Group.