Starting a new business always comes with some risk to balance out the potential reward. But the horizon for any venture constantly drifts beyond expectations and unforeseen interruptions.
Enter the world of merchant cash advances (MCA), which provide quick cashflow solutions without a lengthy application process. Though not everything that glitters is gold,
Merchant cash advance or business cash advance loans may propel your small business through the storm in an emergency or your low-traffic seasons.
The nitty-gritty of MCAs
A traditional loan requires filling out a lengthy application to see if you qualify. The process takes valuable time and doesn’t guarantee results.
A merchant cash advance lender analyzes your credit and debit card receipt to determine how much money the business needs and the terms to pay it back. The MCA contract is simple: it details the amount you qualify to borrow and calculates how much you’re paying back with interest and applicable fees.
Does an MCA lender become your business partner?
In a way, yes. The MCA lender invests in your business in exchange for a portion of your future credit card sales. You can think of it as selling a part of your projected sales later down the line.
A small businesses’ need for an influx of cash is as varied as the nature of their business; an MCA may provide the liferaft during uncertain circumstances or slowdowns.
Will an MCA lender send Cousin Vinny after me?
While applying and receiving an MCA is often quick and painless, it’s still a formal contract. There are consequences when you fail to meet the demands of the agreement, and it warrants an understanding of the fine print of what you negotiated. If you fail to repay your MCA, the lender may sue you for the profits you owe them.
How does an MCA lender determine the amount of an advance?
Lenders calculate the advance based on your monthly sales, which can be equal or greater to the amount you borrow. Although you may qualify for a more considerable sum, you should carefully consider the payback cost. Negotiate the amount of cash infusion you need.
What about the payback?
MCA lenders are in the business of making money. The payback amount of your loan will always be a larger sum (i.e., you borrow $50 bucks, you pay them $70, subject to rates negotiated) and higher than a traditional loan.
Should you take out an MCA?
Running a business is turbulent at the best of times, and access to fast cash can save an enterprise or sink it.
Pros
The best feature is the quick turnaround that allows a business to cross unexpected hurdles. Invariably, an MCA puts the business owner back in command.
MCAs don’t require collateral or involve a credit rating score, and lenders work with the business to achieve reachable repayment terms and massage your holdback terms.
Cons
MCA lenders charge higher interest fees, and your payback amount will carve away business profits to keep the vital wheel of success in motion.
MCA providers are private businesses that aren’t regulated like banks, which may leave businesses vulnerable when payment terms compete with actual sales and income.
Furthermore, MCAs usually have shorter terms than traditional loans.
Yes or no?
Every cash flow situation is unique. Information is your best tool, and so are experts in lending money.
Now that you have the facts, you can determine whether an MCA is an advancement your company needs.
