Is a Merchant Cash Advance Right for Your Business?

If you need capital for your business now, it may be a good idea to consider a merchant cash advance. However, before acting, you need to consider if this is the right option for you.

Learning more about merchant cash advances is the best way to know if this is the right solution for your business.

Getting to Know the Merchant Cash Advance

With a merchant cash advance, you receive much-needed capital for your business. In the traditional sense, providers of these advances report that this isn’t a loan. With the MCA, you receive an upfront amount of capital from a provider in exchange for a portion of your future sales.

How Merchant Cash Advances Work

For years, merchant cash advances have been used by businesses with revenue that mainly comes from debit or credit card sales. Examples of businesses that commonly use this financial product include retail shops and restaurants.  Today, a merchant cash advance can be acquired by other businesses, including those that don’t have a lot of debit or credit card sales.

There are two ways a merchant cash advance can be structured.

One way is to receive an upfront amount of cash in exchange for future debit and credit card sales. The other option is to receive cash and then repay it by submitting fixed weekly or daily debits out of your bank account, which is called Automated Clearing House withdrawals.

The second option is more common today in many businesses. That’s because it allows providers of merchant cash advances to market to all businesses, not just those that receive many credit and debit sales.

Rather than making a single fixed payment each month, you can make weekly or daily payments, along with the fees, until it is repaid.

Merchant Cash Advance Fees

The amount you pay in fees for a merchant cash advance is dependent on your ability to repay it. Based on your risk assessment, the provider will determine your factor rate, which usually ranges from 1.2% to 1.5%. The higher the factor rate is, the higher fees you will pay.

Merchant Cash Advances for Your Business

When it comes to getting a merchant cash advance, you must consider if it is really right for your business. Consider the factors above to know this for sure and shop around for the best rate. There are many MCA providers today, which means you may be able to get a more preferable rate from a different provider.