A new small firm is constantly looking for ways to sustain itself in the short term so that the founders can move closer to their long-term objectives. But for a newer business, getting a loan through traditional means can be difficult. This is why taking out merchant cash advances (MCA) is a viable option: it enables a company to obtain cash immediately without having to go through the lengthy application and approval procedure of a traditional small business loan.
Before you go out and acquire an MCA, make sure it’s the correct fit for your business. Here’s everything that you need knowing about it.
What Is an MCA and How Does It Work?
A lender provides a merchant cash advance, which differs from a regular bank loan. The lender who provides a merchant cash advance will examine your credit card receipts to determine how much you require and how much you can repay.
The amount you’ll receive and the amount of interest you’ll have to pay back will be specified in the contract you sign with the MCA lender. Interest rates differ a lot from one company to the other.
The state in which your company is based has an impact on how much you’ll have to pay in the end, as certain jurisdictions have interest rate caps.
Merchant Cash Advances Are a Simple and Quick Option
You can get a loan of up to $200,000 with a merchant cash advance. This sort of funding is designed to be quick, with funds available in as little as 24 hours. And you can probably expect the debt to be paid off in a few years.
This is significant because your options are restricted when you require immediate cash. After all, traditional lenders aren’t known for paying out quickly. When waiting weeks or months for a loan approval is no longer an option, a cash advance becomes much more appealing.
Qualifying for a Merchant Cash Advance is a simple process.
Taking out merchant cash advances is far easier than getting a traditional loan, which is notorious for reams of paperwork and unnecessary credit pulls.
This is because your qualifications are mostly established by the performance of your business, rather than more subjective factors such as credit scores and financial histories.
To this aim, a lender will examine your bank statements over the previous 4–6 months—basically, your credit card activity will make or break your application.
When you have more than $2,500 in monthly credit card transactions, even if you haven’t been in company for much longer than a year, your odds of acceptance are likely to be good.
Lenders will be looking at the chance of being paid back, so if your company has been pretty successful, that will be a plus. And because of this one-of-a-kind approach to approval, merchant cash advances often have substantially higher approval rates than traditional business loans.
Who Should Make Use of an MCA?
A merchant cash advance is great for a small business that needs extra capital to grow and become more competitive.
Not all small enterprises can obtain bank financing to carry out their objectives. An MCA is not appropriate for a business that has been entirely shut down due to a major calamity.
Taking out merchant cash advances is preferable to seeking assistance in the form of a typical bank loan or a grant because they do not force you to maintain daily transactions in order to return them.
Is Taking Out Merchant Cash Advances Good For Your Business?
A merchant cash advance may be a perfect choice for a short injection of cash, depending on the conditions of your firm. The merchant doesn’t specify how the cash advance should be used; for example, smoothing your cash flow or purchasing assets are two examples of how you can put the lump money to good use.