Is A Merchant Cash Advance (MCA) Right for My Business?

If your company is looking for financing for your business operations, you will have many options. Traditional banks, SBA loans, equipment loans, crowd funding, invoice factoring, hard money lenders and much more. One of the most underutilized vehicles of financing is a business cash advance (BCA), also known as a merchant cash advance (MCA).

With so many different funders with various rates and terms, how do you know which choice is the right one? Read on and we will help you with understanding the definition and process of an MCA.

What exactly is a merchant cash advance:

An MCA provides business owners an advance of the monthly sales revenue regularly moving through the business account. A BCA is not a loan, but rather an advance based upon the future revenues or credit card sales of a business.

In a typical situation, a contract between the lender and the business varies on specific terms like the advance amount, rate, holdback percentage, term, and total payback amount. Once these terms have been agreed to, the funds are transferred immediately into the companies business account, with the agreement that the business promises to pay a percentage of future receivables back.

The total payback is based on either a holdback percentage of the daily processing batches or a portion of the available daily balance in the businesses account.

BCA funders judge risk swiftly by using a different set of underwriting guidelines than a traditional bank has to go through. MCA funders are interested in the history of daily receivables and credit card receipts, previous payment history and whether the business can pay back the advance promptly. This is done instead of using credit and collateral as primary decision points.

Advantages of a BCA

  1. Higher approval rates:

Business cash advances are frequently recognized for their high approval rates. Whether you have bad credit or are in a high-risk industry, it’s not going to prevent you from getting a BCA. Your credit score could be as low as 500 and, as long as your receivables align and your statements are acceptable, you could still be eligible for an advance.

  1. Collateral not required:

There’s no collateral associated with an MCA advance like there is with a typical bank loan. It’s more of a sales transaction, and nothing is reported to the credit companies. The funder is the one taking all of the risks.

  1. Flexible use of funds:

Traditional lenders have restrictions on how you can use the funds they lend, with a MCA you can use the funds any way you want. Whether it be marketing, expansion, advertising, buying equipment, paying workers, purchasing real estate, leases, or anything in between. The funds can be used for any business purpose or expense that you may have.

  1. Manageable payback:

The easy payback process is the most positive attribute for an MCA. Since the advance is revenue-based, you only have to pay back the advance in small portions either with your nightly credit card batches or small daily increments in relation to the volume of sales total.

5 tips for determining the best cash advance funder

  1. Compare rates and terms:

Since MCA funders are essentially giving you money in return for future sales, the rates are higher than traditional lenders. There is no collateral required, but they want the risk needs to be meriting. As a result, there are higher rates and fees. The rates can vary depending on a few factors, so be sure to do your research!

  1. Analyze industry experience:

Industry knowledge can be a big factor in being satisfied with your advance. Make sure the lender you’re considering has worked with other businesses in your industry or at least with comparable business revenue models.

  1. Ask for reviews and search reputation:

MCA providers may have a well-designed website and enticing content, but does the company live up to its claims? Communication is key, and you’ll be speaking with your lender a lot during your repayment process, which will be an easier experience if you are comfortable with your lender.

Research online and browse lender reviews. Ask for tips from a business owner who has used MCA’s before for their own company. Customer service is gold and can create an easy and more enjoyable funding experience.

  1. Read the fine print:

It’s crucial that you read the entire contract carefully and consider all terms before endorsing any contract with a funder.

MCA providers are technically not actual lenders, so merchants have little aid from government regulatory commissions should the relationship go astray. Be sure to review the entire contract for your own legal protection.

  1. Trust your instincts:

Think about whether an individual lender seems right for your business. Is there a genuine interest in your business, or does it feel like you are just another client?

Why Pick Lendini?:

With Lendini, business owners receive the capital they need without lengthy delays or excessive paperwork. Lendini offers pre-approvals in under three hours and next day funding of approved advances in as few as 24 hours. Our staff provides unparalleled customer service and treats each business owner with the respect they deserve.

 

 

Our purpose at Lendini is to release the potential of each small business by equipping them with appropriate and timely access to working capital. We use information, technology, and personal expertise to maximize the potential in every business we fund.

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