Merchant Cash Advance
An upfront sum of money in exchange for a slice of your future sales.
Description: Merchant cash advances are one of the foremost innovative products in alternative business finance. The method in which the merchant running a business pays lump sum amount beforehand to suppliers via its daily or future credit or open-end credit transactions is termed as Merchant Cash Advance.
What is a merchant cash advance?
A merchant cash advance (MCA) is a type of loan that quickly provides cash for businesses. It’s almost like a pay-check advance, except it’s for businesses instead of individuals. A merchant cash advance offers an advance against future sales. This type of financing is usually available to businesses that have a gentle volume of credit card sales, including retail stores, restaurants, and medical offices. Many times, merchants of small and medium businesses experience short-term cash crunch. Due to a lack of enough assets and unpredictable income, sometimes they’re unable to qualify for regular bank loans. Hence, to mitigate liquidity crunch in the business, merchants choose Merchant Cash Advance in India, popularly known as MCA.
Although the interest rates are high still it’s popular among the merchants due to its repayment facility linked with its everyday sales. It’s critical you understand the terms you’re being offered so you will make an informed decision about ROI.
How does a Merchant Cash Advance work?
Any business that uses a card terminal to take payments from customers will have a card terminal provider — the company that processes transactions for them. With a merchant cash advance, the lender works with the terminal provider in order that they have visibility on what’s happening, and how much money is flowing through your business. It means that unlike other types of lending, there’s no need for credit checks or an in-depth look into your accounts.
Each day, an agreed-upon percentage of the daily credit card receipts are withheld to pay back the MCA. This is often called a “holdback” and will continue until the advance is paid fully. Access to a business owner’s merchant account eliminates the collateral requirement required for a standard small business loan.
Repayment is predicated upon a percentage of daily balance within the merchant account therefore more transactions a business does easier it’s to repay the advance. And, should transactions be lower on any given day, the draw from the merchant account also be less. This suggests that during times of slow business, the business’ payback is relative to their incoming cash flow.