What Is a Merchant Cash Advance (MCA)?
A merchant cash advance offers a special solution for businesses that depend on credit card sales to get money quickly. Unlike regular loans, MCAs are more flexible and easier to get because they don’t follow the usual lending rules.
MCAs provide a significant upfront sum of money based on the company’s projection of your future card sales. The amount you receive depends on the company’s estimation of your earnings from these sales. In exchange, you agree to repay this money by taking a portion from your daily card sales.
The Perks of Easy Qualification:
One of the great things about MCAs is that they don’t have strict requirements. Even if your business has a poor credit history, you still have a good chance of getting approved. Banks usually consider credit scores and financial history, which makes it difficult for businesses with poor records to obtain loans. MCAs are a good option for businesses that need quick cash because they mainly consider your daily card sales.
Understanding Merchant Cash Advance Costs
When calculating how much a merchant cash advance costs, it’s essential to understand their unique fee structure. Instead of a regular interest rate, MCAs use a “factor rate” to calculate the total cost. This factor rate is usually between 1.1 and 1.5, depending on how healthy the MCA lender thinks your business is.
Several things can affect the factor rate you get
- Industry: What kind of business you have can make a difference. Some types of businesses are riskier, meaning a higher factor rate.
- Years in Business: Older and more established businesses might get better factor rates than brand-new startups.
- Business Finances: How well your business is doing financially, based on your income and cash flow, will affect the factor rate.
- Credit Card Sales: The frequency and amount of credit and debit card usage can influence the factor rate.
- Personal Credit Score: Even though MCAs don’t rely heavily on your personal credit score, some MCA providers might still consider it.
But remember, the factor rate doesn’t cover all the costs. There might be other administrative or underwriting fees that make the total cost of your money higher.
Finding a Way Out of Your Merchant Cash Advance
Getting out of a merchant cash advance is different for everyone. There’s no one solution that works for all situations. So, it’s essential to research all your options carefully, think about the pros and cons of each, and see what makes sense for your business based on your finances.
It’s also a good idea to talk to a lawyer who knows about debt because they can give you advice tailored to your situation. Coastal Debt Resolve offers free consultations, so you don’t have to worry about costs.
Conclusion
Merchant cash advances can provide assistance to businesses that need quick money to handle cash flow problems. Their easy criteria make them available to many companies, even those with less-than-perfect credit. But it’s important to understand the factor rate and any extra fees to know the total cost of your MCA. Before deciding, seek advice from financial experts and explore alternative ways to fund your business in the future.
Merchant cash advances might seem like a quick way to get cash, but they can be expensive and come with risks. If you own a small business and struggle with merchant cash advance payments, there are alternative options available. Additionally, if you are looking for an affordable solution, there are other choices to consider. Just be careful and take your time to research and compare all your options thoroughly before making any decisions.
