A merchant cash advance is an advance of capital repaid using future credit card sales. Merchant cash advances are the type of financing best for small businesses that require capital to cover cash flow shortages or any such thing. It’s true that business owners should consider every type of financing before relying on any expensive option; hence, it becomes very important for them to have adequate knowledge about everything, as this type of financing could be very expensive for them, which would further create a difficult cycle of debt.
What is a merchant cash advance?
In simpler words, a merchant cash advance is an alternative type of business financing that allows a company to give you an upfront sum of cash. The cash provided by them needs to be repaid by you using a percentage of your debit and credit card sales, along with a certain amount of fee. There’s no doubt that Merchant Cash Advance is a good and reliable option, but because it is expensive, it is advisable to consider small-business loan options before simply jumping to Merchant Cash Advance.
How does Merchant Cash Advance work?
Merchant Cash Advance works in a simple way, as a company provides your business with a lump sum of capital, but it isn’t a loan as that provider is purchasing your future sales in return, which will require you to repay the funds along with a certain amount of fees. The repayments of merchant cash advances could be structured in two ways, which include the following:
- Fixed withdrawals from a bank account: Merchant Cash Advance companies are allowed to withdraw funds directly from the business bank account, and in such cases, fixed repayments are made. This type of repayment structure allows you to calculate the exact amount that you need to pay.
- Percentage of Debit/Credit Card Sales: The Merchant Cash Advance provider automatically deducts a weekly percentage of the debit and credit card sales until the advance is fully repaid. The repayment period in this case is based on your sales and could range from 3 to 18 months.
Merchant Cash Advance Reviews
According to customer reviews, it is an amazing platform where the lender will take your average monthly turnover into consideration to work out how much you will be able to repay comfortably. It provides you with various benefits, such as flexibility, transparency, high speed, unsecured business finance, ease of use, and being less risky than any other.
In order to understand it more clearly, let’s use the merchant cash advance example, where we are taking some imaginary figures, say, the cash advance amount of Rs 10000, the monthly repayment percentage of 20%, and the amount repayable of Rs 12500. In this case, Rs 10000 is the amount that the business receives, and Rs 12500 is what it needs to pay back. Here, 20% is not actually the interest; it is the proportion of your revenue that will go towards paying it back.
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Conclusion
In simpler words, a merchant cash advance is an alternative type of business financing that allows a company to give you an upfront sum of cash. The cash provided by them needs to be repaid by you using a percentage of your debit and credit card sales, along with a certain amount of fee.
FAQs
What is a merchant cash advance?
Unlike a typical small-business loan, a merchant cash advance, or MCA, is an alternate form of funding for businesses. An MCA involves a corporation giving you a lump sum payment that you pay back with a charge and a portion of the sales from your debit and credit cards.
What is a merchant cash advance provider?
A source of merchant cash advances will examine your previous credit card sales. After that, they will pay you in advance, typically using the average of a month’s worth of card purchases. After that, you’ll give them a predetermined portion of your card sales each month until the initial balance plus any additional costs are paid back.
What are the criteria for a merchant cash advance?
The candidate ought to run a reliable company. The business’s minimum yearly turnover ought to satisfy the lender’s requirements. The company ought to have been taking credit cards for a fair while. In order to meet the requirements of the financial service, the applicant should have a respectable CIBIL score.