Merchant Cash Advances

Is your business chugging along? Strong sales numbers are always good to see, but you sometimes need extra funding to take advantage of quick opportunities.

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Merchant Cash Advances

Is your business chugging along? Strong sales numbers are always good to see, but you sometimes need extra funding to take advantage of quick opportunities.

Fortunately, you can leverage your credit sales for more cash — it’s called a merchant cash advance. 

At Business Capital Consultants, we want you to get funding that best fits you business’s needs so that you can focus on business growth. In that spirit, we dove into merchant cash advances below so you can see if it’s a funding source worth considering.

How a Merchant Cash Advance Works

MCAs aren’t exactly “loans”. They’re advances against your business’s credit card sales. In other words, you’re exchanging future sales for cash now. 

As you’d expect, MCA providers care about how many credit card sales you’re making — after all, that’s how they’ll make their money back. 

MCA applications are fast. Your provider just needs to see your documents and credit card receipts, then they’ll quote you the total advance amount, the holdback, payback amount, and other terms. Agree to these terms, and the provider sends you the cash. 

Oh, and the holdback is the amount your provider withholds from your credit sales to pay back the loan. Each day, your provider takes the holdback amount out of your merchant account to pay back your MCA.

Merchant Cash Advance Costs and Repayment

MCAs don’t have traditional interest rates. Providers instead charge a “factor rate” of 20-40% and add it to your payback amount. 

Because of this difference, your holdback will be smaller than your factor rate. Holdbacks generally usually fall in the 10-20% range.

Let’s clear this up with an example.

Say you borrowed $5,000. With a 20% factor rate, your total payback amount would be $6,000. The MCA provider holds back 10% of your monthly credit card sales, which amount to $12,000 each month. That means they withhold $1,200 each month — which means you’d pay off your advance in about five months.

Applying for a Merchant Cash Advance

MCAs are a breeze to apply for compared to traditional loans. After giving your provider your documents (business information, credit card receipts, bank statements, etc.), they’ll approve you for certain terms.

You’ll then set up credit card processing with the provider so they can get paid off your credit card sales. Finalize the details, and the lender will send your advance to your bank account.

Working with a broker like Business Capital Consultants can make this process even faster, matching you to an excellent MCA provider should we determine an MCA be a good choice for your business. We handle all of the paperwork and lender communications — you get the funding you need without dealing with the tedious application process.

Is a Merchant Cash Advance Right For Your Business?

MCAs are great for the short-term. Maybe you have a prime investment opportunity but lack the capital. Or perhaps one of your vendors is offloading discounted inventory — and you want to grab as much as possible.

In either of these cases, an advance could earn you some high returns.

But that’s also what you have to watch out for. Thanks to their low approval requirements, MCAs are a costly type of debt. Whatever you invest your MCA in, make sure you’ll earn more than your payback amount over the same time. 

Consider investing your MCA in something that directly translates to more credit card sales. That’s a surefire way to profit off your borrowing.

MCAs aren’t right for everyone. Business Capital Consultants can help you decide if they’re right for you. But if not, we’ll work with you to understand your goals so we can find the best funding option for your business — that way, you can get back to running it.

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