Merchant Cash Advances

If you’re a small business owner and you are interested in a merchant cash advance for bad credit, or are exploring other funding opportunities for your company, you may have some questions about MCAs, how they work, and whether they’re a good choice for you.

In this guide from ProBizCap, we’ll discuss everything you need to know about this unique financial tool – and help you determine if a cash advance is right for your business. Get the information you need to make a decision now.

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What Is A Merchant Cash Advance?

A MCA may look like a loan, but it’s not. It’s a type of cash advance that’s based on your credit card sales. Here’s how it fundamentally works.

  1. A small business interested in an MCA contacts a merchant cash advance company and provides some basic information about their business, such as how long they have been operating, their typically monthly credit card sales, and other details.
  2. The MCA provider approves them for an advance and pays them a lump sum based on their sales volume.
  3. The small business can use the cash advance to pay for payroll, new inventory, the cost of expanding to a new location, or for any other purpose
  4. A set percentage of daily credit card sales are held back from the small business and sent directly to the MCA provider until the full amount of the cash advance + fees is repaid
  5. The engagement is concluded once the cash advance is repaid, and the relationship between the MCA provider and small business is over unless they choose to obtain a new merchant cash advance.

MCAs are a good alternative to traditional small business loans since they can often be used by people and businesses with poor credit, or who have not been operating their business for a very long time. 

What Is A “Holdback” And How Does It Affect MCA Repayment?

 The “holdback” is the percentage of credit card sales taken from your business each day to repay your loan. Usually, this is between 10-20% of your sales volume. This percentage is fixed and will be paid until the MCA is repaid.

One nice thing about MCAs is that your repayment can fluctuate based on sales volume. When sales volume decreases, so do your repayment – and you can pay off more of your MCA when sales are strong. This contrasts with traditional bank loans, which almost always have a fixed monthly repayment. 

Do MCAs Charge Interest? Understanding “Factor Rates” 

MCAs don’t charge interest like a bank loan. Instead, they use “factor rates,” expressed as a decimal percentage. A 1.2-factor rate, for instance, means that an MCA of $100,00 would be repaid as $120,000.

The factor rate has a major impact on how much you’ll pay for the MCA overall. A lower factor rate is always better, and you’re more likely to qualify for lower factor rates if you have strong credit, a long history of profitability, and high monthly credit card sales.

When working with merchant cash advance companies, make sure they are open, honest, and up-front about both their factor rates, as well as your expected holdback percentage. This will ensure that you can understand the costs associated with the MCA, and determine if it’s a good financial option for your small business.

Is A Merchant Cash Advance A Loan? 

It may seem like an MCA is a type of loan, but this is not technically true. It’s an advance – a purchase of your future credit card sales in exchange for an up-front lump sum. This means that it’s not technically a loan.

A MCA is more similar to other types of advance purchases like invoice financing than it is too small business loans. Merchant cash advances are not regulated as loans at all.

Note that this could expose you to some more risk and higher interest rates since constraints that apply to traditional small business loans don’t apply to MCAs. For this reason, it’s very important to choose a reputable and well-known merchant cash advance company if you choose to make use of this financial tool.

Is It Possible To Get A Merchant Cash Advance With Bad Credit? 

Yes. If you have bad personal credit or business credit, an MCA may be your best option for small business funding. This is because MCAs evaluate risk differently than traditional bank lenders.

They are not as concerned with your past credit history and loan history. Instead, they want to see that your business has been operating profitably for a set period of time – say, 6-12 months. Based on the profits you make and your monthly credit card sales, they will approve you for a certain amount of up-front cash.

However, note that MCAs are often riskier for cash advance companies compared to loans made by traditional banks. Therefore, the factor rate and overall cost of an MCA can be higher compared to a bank loan. Keep this in mind when evaluating MCA terms and deciding if a small business cash advance is right for your small business.

Get Started With A Merchant Cash Advance From ProBizCap Today 

At ProBizCap, we work with reputable merchant cash advance companies and traditional loan providers to provide financing to businesses of every size. Whether you want a merchant cash advance for bad credit or you’re interested in traditional small business loans, our team is here to help.

So don’t wait. Start exploring your options right away by applying online at ProBizCap or giving us a call at (800) 508-4532. Our team of experts is always standing by to answer your questions and give you the guidance you need to choose the right method of business funding.

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*Same-day funding within 24-hours, funding times depend on several factors including delivery of necessary documents for approvals, communication delays, banking hours, holiday hours, transfer delays, and other unexpected events.

All loans issued are at the sole discretion of the lender or funder. Your small business loan agreement or business advance agreement will identify the funder/loan issuer before you sign, and any product or loan amount offered will depend on the underwriting standards of the issuer. ProBizCap is not a direct lender, does not offer loans or cash advances of any kind.

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