Your Question: How Do Merchant Cash Advances Work?
Got budget gaps in your business? If there’s anything that 2020 has taught us, it’s that what we think is a sure thing, just might not be. That includes the cash flow of a business.
Budget and funding gaps are large for newer businesses. If you don’t have a lot of clients, you might offer them better terms to attract their business. Sweetening the pot can help overcome a client’s initial skepticism. So just like a starter vendor, you might be offering Net 30 terms.
Offering Net 30 or Net 60 or even Net 90 terms is a great strategy to develop business relationships. But you end up with a lot of time between providing your good or service and getting payment for them. But in the meantime, your business’s bills have to be paid, and you have to make payroll no matter what.
So How Do Merchant Cash Advances Work?
An MCA technically isn’t a loan. Rather, it is a cash advance based upon the credit card sales of a business. A small business can apply for an MCA and have an advance deposited into its account fairly quickly. So you can offer Net 30 terms, but not have to wait a month for payment.
Which Kinds of Businesses are Merchant Cash Advances Good For?
A merchant financing program is ideal for business owners who accept credit cards and are looking for fast and easy business financing. An MCA program is designed to help you get funding, based strictly on your cash flow as verifiable per your business banks statements. As a result, lenders in general will not ask for any burdensome document requests.
Not asking for a lot of documents, is not like what most conventional lenders demand. These can include financials, business plans, and resumes. Best of all, you can get approval regardless of personal credit quality. You don’t even need collateral. Your business’s credit card receipts and business bank statements do all the talking.
How Do Merchant Cash Advances Work? Really?
Merchant cash advance providers weigh risk and credit criteria differently from how a banker does. An MCA provider looks at your company’s daily credit card receipts. This is to determine if your business can pay back the funds in a timely manner. In essence your small business “sells” a portion of future credit card sales, this is in exchange for immediate payment.
What are Some Caveats When It Comes to MCAs?
Rates on a merchant cash advance can be much higher than other financing options. Depending on the company, rates can end up being prohibitively high. As a result, it’s crucial understand the terms you’re being offered. That way, you can make an informed decision about whether an MCA is worth it.
Qualifying for a Merchant Cash Advance
To determine approval, the lender will review 3 months of your bank and merchant account statements. All the lenders are looking for is consistent deposits. They want to see deposits showing your revenue is $50,000 or higher per year. They will also verify that you have been in business 6 months or more.
Lenders are also looking to see that you don’t have a lot of Non-Sufficient-Funds (NSFs) showing on your bank statements. They want to see you don’t have a lot of chargebacks on your merchant statements. And they want to see that you have more than 10 deposits in a month going into your bank account. In essence, they want to see that you manage your bank and merchant accounts responsibly. And they want to see that have a decent number of consistent credit card transaction deposits each month.
The Nitty Gritty: How Do Merchant Cash Advances Work?
The small business owner and MCA provider agree on the advance amount, payback amount, holdback, and term of the advance. Once an agreement is made, the advance is transferred to the business’ bank account. This is in exchange for a future percentage of credit card receipts.
Each day, an agreed upon percentage of daily credit card receipts are withheld, to pay back the MCA. This is called a holdback. The holdback will continue until the advance is paid in full.
A business that uses a merchant cash advance will typically pay back 20% – 40% or more of the amount borrowed. This percentage is called the factor rate. There’s a difference between the holdback amount that a small business pays every day, which is a percentage of sales receipts, versus the repayment amount for the entire advance.
There could, for example, be a holdback of 15% and a repayment of 30%. It’s important for business owners to understand this distinction.
A holdback percentage is based on the amount of funds a business gets, how long it will take to pay back the money, and how big monthly credit card sales are.
Why Access to a Merchant Account Matters
Access to a business owner’s merchant account eliminates the collateral requirement needed for a traditional small business loan. Since repayment is based upon a percentage of the daily balance in the merchant account, the more credit card transactions a business does, the faster they can repay the advance.
One great plus when it comes to MCAs, is they are based on percentages. So if transactions are lower on any given day, the draw from the merchant account will also be less. This means that during times of slow business, the business’ payback is relative to incoming cash flow.
How Do Merchant Cash Advances Work Through Credit Suite?
Our merchant financing program is perfect for business owners with credit issues. Lenders are not looking for, nor do they require good credit to qualify. You can even get approval with severely challenged personal credit and low credit scores. You can get approval regardless of personal credit quality, even if you have recent derogatory items and collections on your credit report.
This is one of the best and easiest business financing programs in existence, that you can qualify for even if you have personal credit problems. You can get approval for as much as $500,000 in financing, with no collateral requirements and bad credit.
Our MCAs are FAST
You can get pre-approval for our merchant financing program within 24 – 48 hours. You can get your formal approval and funds within 72 hours of submitting your application. Our clients love this program partially due to how easy it is to apply and get approval and how FAST you get your funds!
Get 24-hour Pre-approval
Loan amounts and qualifications depend on credit card statements. Go from application to funding in 3 days or less. Get approval for additional future funding.
Easy merchant statement review for approval. No application fees. Get approval with bad credit. There are no collateral requirements.
The only financials you need are 3 months of bank statements. Get approval with revenues of $50,000 or less. Starter programs are also available. Get 3 – 36 month terms. Get approval for up to one month’s revenue with our proven solution.
You can even Get a Second Merchant Cash Advance through Credit Suite
Over 80% of our clients come back for even more financing, after their initial approvals with our Revenue and Merchant Financing programs. Typically within 3 – 6 months of approval, you will get an opportunity to get even more money than you got before. And all you will need to get approval for more funding is, a quick review of your last 3 months of bank statements
You can get your money in your bank account within 24 hours or less! We also provide you access to merchant credit lines. So you can have consistent access to cash. Our merchant financing program helps you rapidly grow and scale your business. You will have ongoing access to receive more and more funding easily and very quickly when you need it!
How Do Merchant Cash Advances Work: Takeaways
Many businesses have budget gaps due to giving better terms to their clients, or for any other reason. Merchant cash advances are one excellent way to bridge the money gap. Understand the numbers and know what you’re getting yourself into. Always ask questions if you don’t understand something. And check out Credit Suite’s merchant financing program for fast money. Let’s take the next step together.