A merchant cash advance (MCA) is a type of financing that allows businesses to access cash quickly by selling a portion of their future credit card sales to a lender. MCAs are a popular option for businesses that need working capital but cannot obtain traditional bank loans.
Here’s how it works: A business owner applies for an MCA and agrees to sell a portion of their future receivables to the lender. In exchange, the lender provides the business with a lump sum of cash upfront. The percentage of future sales that the business agrees to sell to the lender is known as the “holdback.”
Repayment of the MCA is typically done through automatic daily or weekly payments from the business’s principal bank account. The predetermined fixed payment amount is deducted from the bank account at the agreed-upon frequency until the full amount of the purchased receivables is paid back.
MCAs can be a great option for businesses that need cash quickly, as the application process is typically faster than traditional loans, and approval rates are higher. However, they can also be more expensive than other types of financing, a price that the speed of the process can offset, but also significantly discounted with the commonly included early payment discounts.
It’s important to carefully consider the terms of an MCA before accepting it, as the holdback percentage and repayment terms can have a significant impact on the business’s cash flow. Businesses should also make sure they can afford the daily or weekly payments, as missed payments can result in additional fees.
MCAs are best used for short-term financing needs, such as inventory purchases or seasonal fluctuations in cash flow. For longer-term financing needs, businesses should consider other options, such as term loans or lines of credit.
In conclusion, a merchant cash advance is a type of financing that allows businesses to access cash quickly by selling a portion of their future credit card sales to a lender. While MCAs can be a good option for short-term financing needs, they can also be more expensive than other types of financing. As with any financial product, it’s important to carefully consider the terms and conditions before accepting an MCA.
If you think this financial solution might be right for you and your business then reach out to us. That way we can discuss a few options for you to choose from. 1-844-222-2900