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ULTIMATE GUIDE TO MERCHANT CASH ADVANCES (MCAS): BOOST YOUR BUSINESS FUNDING | GOTBIZLOANS.COM
Merchant Cash Advances: Fast Funding for Business Owners with Low Credit and No Collateral.
Imagine a business owner urgently needing $20,000 but unable to secure a short-term loan due to low credit or no credit history and no collateral. A Merchant Cash Advance (MCA) is the ideal solution in such cases. By leveraging their credit card merchant account or the last three months of business bank deposits, they can quickly obtain an MCA. This alternative to traditional loans offers a fast and straightforward approval process, providing an advance based on the business's credit card sales or monthly deposits. The entire process, from application to funding, typically takes just 2 to 5 business days.
How Does a Merchant Cash Advance Work?
Merchant Cash Advance providers, also known as funders, assess risk by focusing on daily credit card receipts or gross monthly deposits to determine repayment capability. They use a formula of a 50% holdback maximum per month on true monthly revenue, either through bank deposits or credit card sales. Businesses receive immediate capital in exchange for a portion of their future credit card sales or future receivables from deposits. Repayment is automatically deducted as a percentage of daily or weekly credit card receipts or deposits, often at higher rates than traditional loans. To determine eligibility, funders review the most recent three months of business bank statements or credit card statements, averaging the gross deposits over this period. Based on this analysis, businesses can receive funding ranging from 100% to 200% of the average monthly deposit amount. This quick and flexible funding option helps businesses access the capital they need to thrive.
Understanding Repayment and Costs of Merchant Cash Advances (MCAs).
Repaying a Merchant Cash Advance involves withholding a percentage of daily or weekly sales until the advance is fully repaid. For businesses with lower credit scores (as low as 500), repayments are typically made daily. For those with higher credit scores (around 680+), repayments can be made weekly, often with lower factor rates and longer terms. Many merchants turn to MCAs when they can't secure traditional bank loans due to lack of collateral or being new in the business—we fund businesses as new as 6 months. The factor rate determines the repayment amount, typically ranging from 1.20 to 1.49, meaning you repay $1.20 to $1.49 for every dollar funded. For example, a factor rate of 1.20 equates to 20% interest, so for every $1 funded, $1.20 is repaid. For businesses not processing credit card payments, the funder assesses monthly deposits and sets a daily or weekly withdrawal amount from the merchant's account until the total repayment amount (also known as RTR or Right to Receive) is repaid. For instance, if a funder provides a merchant with $100,000 at a factor rate of 1.49 over a 6-month term, the total repayment (RTR) would be $149,000. This results in 126 daily ACH draws of $1,182.54, assuming 21 business days per month (excluding weekends and holidays). For weekly withdrawals, the amount would be $5,775.20 per week. Withdrawals are only made on business days, helping businesses manage their cash flow effectively. This straightforward repayment process ensures businesses can manage their cash flow while repaying the advance.
Is a Merchant Cash Advance Right for Your Business?
Merchant Cash Advances (MCAs) are ideal for addressing short-term capital needs such as inventory, payroll, tax liens, working capital emergencies, or marketing expenses, especially for businesses with high credit card transactions but less-than-perfect credit and no collateral. They offer quick access to funds, which can be crucial in urgent situations. For example, if a pizza shop's oven—essential for cooking 1,000 pizzas a day—breaks down, the business could face significant disruptions. Traditional bank financing could take months and might result in a denial. In such cases, an MCA provides a swift and suitable funding solution, ensuring business operations continue smoothly. However, MCAs are not intended for regular use due to their high costs and the potential for accumulating debt. They are best used as a one-time solution to address urgent financial matters. MCAs can be a lifeline for businesses needing quick funds to address immediate needs.
Pros and Cons of Merchant Cash Advances. Advantages of Merchant Cash Advances (MCAs):
- Rapid Access to Funds: MCAs provide quick capital, often within a few days, making them ideal for urgent financial needs.
- Flexible Terms: Repayment terms are based on your sales, allowing flexibility in managing cash flow.
- No Collateral Required: Unlike traditional loans, MCAs do not require you to put up assets as collateral.
- No Impact on Credit Score: MCAs do not affect your credit score, making them a suitable option if you have less-than-perfect credit or prefer to avoid impacting your credit rating.
Drawbacks of Merchant Cash Advances:
- High Costs: MCAs can be expensive, with costs comparable to credit card payments. The factor rate can result in significant repayment amounts.
- No Positive Impact on Credit Score: Since MCAs are not reported to credit bureaus, they do not help improve your credit score.
Eligibility and Alternatives: To qualify, businesses need to either accept credit cards or maintain a minimum of $10,000 in monthly gross deposits in their business bank accounts, and they must have been operational for at least six months. If a Merchant Cash Advance (MCA) isn't the right fit, exploring alternative loans or working capital options from different lenders is advisable. In summary, MCAs offer a fast and flexible funding option without the need for collateral or impacting your credit score. However, they come with high costs and do not contribute to credit score improvement. Consider these pros and cons to determine if an MCA is the right choice for your business's financial needs.
Streamlined Application Process for Merchant Cash Advances.
Applying for a Merchant Cash Advance with Got Biz Loans is simple and efficient. Here's how it works:
1. Click "Apply Now": Begin your application by clicking the "Apply Now" button on our website.
2. Fill Out the Application: Provide basic business and personal details in the form.
3. Submit Bank Statements: Either upload your last three months' business bank statements or securely link your business bank account using PLAID.
Our streamlined process ensures swift approvals, with funds typically deposited within a few days. Experience fast and flexible funding to support your business needs.
Tips and Caveats for Merchant Cash Advances.
Merchant Cash Advances (MCAs) can provide quick access to capital, but there are important considerations:
1. No Credit Building: MCAs do not contribute to building your business credit score.
2. High Costs: MCAs often come with high interest rates, making them an expensive funding option.
3. Ensure Positive ROI: Before committing to an MCA, ensure that the investment will yield a positive return. This means the funds should be used in a way that generates more revenue than the cost of the advance or used for emergencies only.
4. Defined Repayment Strategy: MCAs are best suited for businesses with a clear and well-defined repayment strategy. This helps in managing the high costs and ensuring that the business can handle the repayment schedule.
While MCAs offer fast access to funds, it’s crucial to weigh the high costs and potential impact on your cash flow carefully. Make informed decisions to ensure the financial health of your business.
Need an MCA? Apply now with Got Biz Loans to explore your funding options and find the best solution for your business needs.ULTIMATE GUIDE TO MERCHANT CASH ADVANCES (MCAS): BOOST YOUR BUSINESS FUNDING |