If you need financing for your business, one option you could consider is a merchant cash advance. This type of funding can prove to be very worthwhile in a lot of cases. However, it may not be the best choice for everyone. Understanding how MCAs work and what the advantages are will help you to make an informed decision about financing your business.
What Is an MCA?
Although it is often treated as one by business owners, an MCA is not a loan. Instead, it is an advance on your future credit card sales. Essentially, the provider gives you a lump sum and then takes payments as a portion of your credit card sales that total up to the original amount plus fees. The main advantage of this is that it is primarily based on your credit card volume rather than your creditworthiness.
Who Can Use an MCA?
The exact qualification requirements can vary, but MCAs are typically only available with merchant accounts. Thus, you need to accept payments via Visa, MasterCard, American Express and/or another credit card. Furthermore, the volume of those card payments needs to be sufficient to be able to cover the advance payments. Some advances are based on ACH payments from your bank account rather than credit card sales (sometimes called a bank advance).
How Are the Payments Made?
Unlike a term loan, an MCA is repaid with automatic payments. In many cases, these are daily or weekly amounts are withdrawn from your merchant account. The amount may be based on a percentage of your credit card sales. Alternatively, it may be a fixed amount that needs to be paid every day. This is generally very easy to manage, but it may put a strain on your cash flow if you opt for an overly expensive advance.
Should You Use an MCA?
The biggest benefit of an MCA for most businesses is the fact that they can qualify for one. Getting money as a small business or startup is hard. So, an MCA may be the solution. Additionally, there is typically no collateral required, and you can receive funds quickly. However, it is important to understand the full costs before you agree to an MCA.
Discover more about merchant cash advances. This may be the financing answer you are looking for to help your business. Get some quotes to determine if this could be right for you.