What is merchant cash advance
Small business owners who are in urgent need of money or need access to a short-term capital can use their credit card sales as a means for funding. A merchant cash advance (MCA) also popularly known as credit card receivable funding is a quick and efficient way of getting small-dollar business funding. It is not a loan, but instead an advance based on the credit card sales of a small business. A business applying for a merchant cash advance can be assured of having the money deposited in their account fairly quickly.
The way merchant cash advance works are that an agreement is made between a small business and a MCA provider. The agreement highlights the advance amount, the payback amount, and the holdback percentage. After the agreement is made by both parties, the advance is deposited in the bank account of the small business. The MCA provider will receive a percentage of receivables or credit card receipts in exchange. Every day, a certain percentage of the credit card receipts or “holdback” will be set aside to pay back the merchant cash advance.
The payment will be made continuously on a daily basis until the entire advance amount has been paid. Since the repayment depends on the daily revenues, the number of the transaction a business makes, the faster the advance can be repaid. However, if there are very few transactions in a day, the amount that will roll into the merchant account will also be less. The major advantage with such a set up is that a small business can obtain instant cash without having to keep a collateral for a traditional business loan.
Merchant cash providers often scrutinize your influx of credit card payments before approving your advance. Providers will look at your daily credit card receipts to assess your ability to repay the advance on time. If you are planning on taking a merchant cash advance, make sure you are thorough about the terms and conditions involved as well as the ROI you may get.