What is a Merchant Cash Advance?
A Merchant Cash Advance is an upfront Advance which is paid back from a percentage of your daily credit card sales.
Who is a merchant cash advance good for?
- Someone who can’t qualify or have been turned down by the banks.
- Someone who needs money fast and cannot wait 3-6 months to possibly get a bank loan.
- Someone who does not have great business or personal credit.
- Someone who does not want to incur debt.
- Someone who does at least 5k in credit card sales per month.
- Someone who needs additional working capital.
- Someone who needs money to take advantage of a growth opportunity.
- Someone who needs money very fast for an emergency expense.
What are MCAs used for:
- Expansion of Location
- Business Improvements
- Marketing Campaigns
- Purchasing new Equipment
- Emergency Cash Needed
- Seasonal Business
- Pay off existing Debts
- Pay Rent
MCA vs Bank Loan
- Funded in 5 days or less.
- Fast and easy loan application process.
- Easy to qualify for fund based on a company’s credit card revenue.
- Do not need to put up collateral.
- Do not have to personally guarantee the advance.
- Pay back is flexible. When you make more, you repay more. When you make less, you pay less.
- Your credit score is not important.
- The money can be used in any purpose.
- Takes few weeks, even a few months to get the funding.
- Need bank statements, business plan, great credit, profit and loss statements, experience.
- Most business owners seeking a bank loan are turned down. Less than 20% are approved.
- You must put up collateral.
- You personally guarantee the loan.
- Bank payback is rigid. It is a fixed amount, no matter how the business is doing.
- You need great personal and business credit.
- The bank needs to know exactly what the loan would be used for.
Types of businesses that MCAS are good for:
- Hair Salons
- Barber shops
- Gas Stations
How does an MCA work?Case Study
Amount of Advance = 50K
Factor Rate = 1.15%
1. Loan or Advance Amount x Factor Rate
50,00 x 1.15% = 57,500
2. Daily Credit Card Sales = 2000
Holdback Rate = 10% of Daily Credit Card Sales
2000 x 10% = 200
200 will be paid back to the MCA lender untill the 57500 is paid back in full.
***** The repayment typically ranges from 3 to 18 months. The higher your credit sales, the faster you repay the merchant cash advance.
You pay less in slow days and more in bad days.
Split Withholding – The payments are paid daily and processed by you credit card processor. In this example 10% goes to the lender.