The concept of a merchant cash advance is as simple as it gets. You're borrowing against future credit card sales on your business account, which will help you meet the demands for inventory and payroll until your next paycheck arrives. But what does this mean? How do these work - and why should you try one out instead of getting another loan?
ABC’s Of Merchant Cash Advance
Merchant Cash Advance is something almost every business owner knows about. The fastest and easiest way to get credit for your business. This is public knowledge regarding Merchant Cash Advance. There are still many rumors around it, making business owners less reluctant to benefit from Merchant Cash Advance. By reading this article further to understand what Merchant Cash Advance is and how it works.
What is Merchant Cash Advance?
Merchant Cash Advance is not a loan. Merchant Cash Advance is the advance that gets on future credit card sales your business is likely to receive. You are borrowing against your future sales, which you will invest into your business, generate more sales and pay off the borrowed sum, including the interest from those sales.
You receive the money you desperately need, use it to boost your business, then pay the sum back according to the sales you make. It’s that simple. It's way different than traditional loans and better in terms of speed and availability. The qualification criteria are basic. And the application process is simple too.
Note: If your business doesn't accept credit card payments, then you won’t qualify for Merchant Cash Advance.
How Does It Work?
Make sure you do good research and get the best deal possible from the company you are choosing. Check their reviews and do the whole deal. Dot your i’s and cross your t’s. Even if you are in a hurry to get the cash, this is important.
Now that you made up your mind about the company and read the contract thoroughly. Fill the application form and be done. It’s fast and hassle-free.
After you apply for Merchant Cash Advance, you are likely to receive the sum within 24 hours. Even the application forms are easy to fill, and most probably, everything happens online. But you can also go to a local company if you want to.
Payback Structure of Merchant Cash Advance
The payback structure of Merchant Cash Advance is totally different from traditional loans. Here, you’ll be paid daily or weekly based on the contract. But you pay a pre-decided percentage of the total credit card sales you made instead of a fixed amount.
The payback structure of Merchant Cash Advance depends upon two things, the factor rate, and the holdback percentage. Now, this is where you should pay close attention.
The payback amount is determined by the factor rate. Factor rate will be determined by the company from which you will get an advance. Mostly it is between 1.2 to 1.5, depending on the company. It is based on the risk assessment. The higher the factor rate, the more interest you pay.
To calculate the sum of what to repay, multiply the factor rate by the total amount of credit you used. Let’s consider that you borrowed $15,000 with a factor rate of 1.5. Then the sum you repay is $22,500. ($15000 x 1.5 = $22,500)
Now that you know the total amount of sum that you have to repay comes the installment part. As mentioned earlier, you don’t pay a fixed amount every day or every month, but a fixed percentage of total credit card sales you made. The pre-decided percentage that will be debited daily is the holdback percentage.
One disadvantage of Merchant Cash Advance is that there is no grace period. This means that the deductions will begin from the very next day. But on the other hand, the amount that will be deducted is based on the sales you make.
So if the holdback percentage is 10% and you made a sale of $800 that day, only $80 will be deducted. And if you made only $80 that day, only $8 will be deducted.
You can decide whether the deductions will happen daily, or weekly, on business days only or will include weekends.
Once the advance is paid back, these deductions will stop, obviously!
Why Do Businesses Opt For Merchant Cash Advance?
For one, Merchant Cash Advance is quick. So in case you are planning to do something big, Merchant Cash Advance is a guaranteed source of credit you might need.
Many even choose MCA because they didn’t get approved for the loan they applied for, and they now need that cash really fast.
Merchant Cash Advance is a fast, reliable, easy to apply, and guaranteed way to get credit, even huge amounts. You can apply even if you have a low or bad credit score. Or without any collateral. You don’t even have to share even 1% of your business. You stay the sole owner of the business and future profits.
As Merchant Cash Advance aren’t loans, they won’t affect your credit score any further. You don’t have to worry about further damaging your credit score.
Will It Really Boost Business Growth?
The short answer for this is, it depends. It depends on how you manage the credit and the investments that you make. Whether or not the changes you made have a positive or negative effect on your business.
Is Merchant Cash Advance really beneficial for your business? Read about that here.
Now that you have understood Merchant Cash Advance, you can decide if this is what your business needs for growing.
Greenpoint Capital has investors and partners that can fund as high as $10,000,000 for the Merchant Cash Advance program. This can be the much-needed boost your business might be needing.
You can apply online as well, and that too in all 50 states.