How to Best Leverage a Merchant Cash Advance
In the world of finance, a merchant cash advance (MCA) is a lump sum amount provided to a company as payment for some agreed-upon percentage of receipts from daily credit card sales. Of course, this arrangement would only work in businesses which have a high volume of daily credit card sales, but it can be quite beneficial to a retail company, because it’s not a loan which has to be paid back monthly. One good way to leverage an MCA to best advantage might involve increasing monthly credit card sales, to get the advance amount repaid more quickly.
Who uses merchant cash offenses?
Since merchant cash advances tend to be one of the more expensive options for financing, they are generally undertaken more often when the company seeking funding cannot secure capital through a traditional loan, or any other means. It also happens fairly often that companies needing the cash very quickly will apply for merchant cash advances, because they can be set up rapidly, whereas many other forms of financing are much slower. Companies which don’t qualify for traditional loans because of low credit scores, will usually not be denied approval for a merchant cash advance on the basis of credit history, since business volume is much more of a factor.
How does an MCA work?
A business owner that does have a high volume of credit card transactions can apply to an MCA provider, after which the lender will conduct a review of the applicant’s credit history, as well as the volume of monthly credit card sales generated by the business. When approved, a company owner will generally receive a lump sum in just a couple days. The amount repaid by the business owner will then be determined by the factor rate quoted by the alternative lender.
For instance, if the factor rate is 1.2% and the business owner was advanced $20,000, the total repayment necessary to the lender would be $24,000. After the lump sum payment has been provided to the company owner, a daily percentage of credit card sales is subtracted by the alternative lender until the entire lump-sum amount is repaid.
Merchant cash advances and FinCentral Capital
FinCentral Capital is a provider of merchant cash advances, which can be very advantageous for certain types of businesses. If your small business fits in this category and you need quick financing, contact us at FinCentral Capital, so we can explore the financial possibilities.