Merchant Cash Advance

March 2, 2023 | Merchants | Dustin

What Is A Merchant Cash Advance?

A merchant cash advance is a payment made to small businesses for a portion of their future credit card transactions. Businesses that operate with a steady and growing income can find ways to make new investments. A merchant cash advance helps fund new endeavors with the agreement that they’ll pay when future sales are processed.

Importantly, the acronym MCA is often used to abbreviate merchant cash advance. Learning some basic financing lingo can help you better understand this article and determine which company will be best for you to get your cash advance from.

How Can I Get A Merchant Cash Advance?

The best way to get a merchant cash advance is to apply for one through a bank or payment processor. They are already familiar with your sales volume and payment history, so it will be easy for them to evaluate whether or not you qualify.

Besides selling future sales of debit and credit card transactions, you can also schedule payments, these payments can be to whatever terms you and the bank determine. The fees for the cash advance are determined by your ability to repay it. Moreover, you will have a factoring rate, as well as fees. These three concepts determine your total repayment.

MCA Holdback

A holdback is the percentage of the credit card transactions the bank takes out for the MCA. This is often taken out daily at a fixed rate which ranges from 10% – 20%. The holdback is often minimal enough to allow the merchant to make ongoing revenue while still repaying the debt.

Daily Withdrawals

This is a separate type of agreement is where the bank takes out a fixed amount each day. Some merchants prefer this approach because it allows for consistency in their books. The daily withdrawals can be either with an automatic debit or ACH processing.

Is An MCA Right For Your Business?

The best part about this type of loan is that it’s not enforced by collateral. You’re using the future capital of your business to get a present cash payment.

For many businesses, they don’t want to leverage certain items, or they may not have the assets to back up a loan with. In this case, you only have to show your processing history as evidence for future business.

Another benefit of receiving an MCA is that it may be a great option to help you grow or sustain a business that may be on the verge of climbing higher or threatened by competition. It’s a fast and certain, cash-in-hand model that can be a lifesaver for a business, especially in the wake of pandemics or a struggling economy.