Getting a business loan is not easy. It requires a lot of paperwork and takes a lot of time for approval (if it does get approved at all).
Luckily, business owners have more financing options available today. One of the quickest ways to get a loan is through a Merchant Cash Advance provider.
What is Merchant Cash Advance (MCA)?
Small business owners can apply for a merchant cash advance – a financing option that is an alternative to traditional loans (banks). However, you have to be a small business with mostly credit card receivables. This is because repayments of the loan are taken from your daily or monthly credit sales.
Advantages of a Merchant Cash Advance
- Easy to apply as most of the processing can be done online.
- It doesn’t require that many documents.
- Approval can be as fast as a few hours to 2-3 days.
- There is more flexibility in what you can use the funding for.
- Payments are based on your business’ receivables.
Steps in Applying for a Merchant Cash Advance
Find the right merchant cash advance provider.
It cannot be stressed enough that you need to do your research. Make sure the MCA provider is partnered with trusted lenders and can provide you with a feasible and realistic cash advance loan, repayment scheme, and holdback rate. Also, check what paperwork they require.
Send your application. Some MCA providers will ask for your financial statements and your type of business aside from other basic information.
Prepare the necessary documents. Generally, these include your bank statements, credit card processing statements, and your business papers.
Review the contract. Carefully review the finalized financing contract making sure to check the default penalties, the payment details, and the cash advance amount. Ask your merchant cash advance provider for clarifications or questions if anything is confusing.
When you are confident that everything checks out, sign the contract and wait until the loan is deposited into your business bank account.
Is an MCA right for you?
A merchant cash advance is a quicker way to get funding for business emergencies like equipment replacement or repair, cash flow gaps, business expansion, and seasonal costs. It is a good alternative if your business receives high volumes of credit card payments, and if you need the cash advance only as a short-term financing solution.
An MCA loan also has more lenient qualifications. So if you don’t have a good credit score, you have better chances of getting business financing with merchant cash advances.
However, just as with any other type of business loan, a merchant cash advance also has disadvantages. For example, you need to make daily repayments which can be variable payments. If you are struggling with your daily sales and overhead costs, or plan to use the funding to revive your business, an MCA might not be for you.
Defaulting on your payments can force your MCA provider to report you to Business Credit Bureaus and go after your assets, guarantor, and business to recover the money they lent to you.