Some business owners find themselves in a financial tight spot, especially regarding the payment of suppliers. After exhausting all financial options, you may be forced to secure a merchant cash advance. Here is what you need to know about merchant cash advances.
Definition
A merchant cash advance (MCA) is a business financing option that involves securing large sums of money from merchants. In return, you have to provide a percentage of your daily credit receipts to the merchant
Beneficiaries of Merchant Cash Advance
Before resulting in this financing option, you must scrutinize its viability. Those who can access merchant cash advance include:
Unpredictable businesses- if your revenue fluctuates, you may consider having an MCA.
Bad personal credit- your credit score may limit you from accessing financing such as bank loans. Therefore, merchant cash advance comes in handy.
Lack of financing options- if you exhausted other financing options, then you can settle for MCA.
Alternative to MCA
Experts recommend that merchant cash advance should be the last financing option due to its expensive repayment plan. That said it is crucial to consider other options. They include:
Small business loans
A business line of credit
Equipment loans
Home equity loans
Terms and Qualifications
Factor rate- refers to the charges imposed by the MCA provider for the funds issued. This rate often falls between 1.1x and 1.5x.
Holdback percentage This is the percentage of daily credit card receivables used to repay in advance. The percentage ranges from 8% to 30%.
Expected APR. Given the high costs of borrowing and short repayment period, APR can range from 30% to 150%.
Advance amount versus factor rate. In MCA the advance amount determines the actual cost of the advance.
Summary
A merchant cash advance is an expensive financing option that should be accessed after failing to use other alternatives. Achieve Capital Advisors are your go-to partner on merchant cash advance matters.