Merchant Cash Advance
Everything You Need to Know about Merchant Cash Advance Offers
Raising capital as a small business owner is challenging enough as it is.
Combine trying to pursue unsecured business loans with a bad credit rating, and next to no business track record to speak of – something so many startup entrepreneurs are bringing to the table when pursuing financing – and raising capital becomes almost impossible.
Thankfully though, with the help of the right merchant cash advance (MCA) opportunities, entrepreneurs are finally finding access to quick capital they need to build and grow their business and leveraging these opportunities to generate the financial future of their dreams.
Like most other unsecured business loans out there right now, you have to be smart and strategic about how you use merchant cash advance offers. While these kinds of lending programs can be very helpful for growing your business or maintaining your cash flow in the short term they aren’t without drawbacks or downsides.
You need to know exactly what you are getting into before you dive right in.
But that’s why we have put together this quick guide.
By the time you’re done with all of the inside information we highlight below, you’ll better understand:
- Exactly what a merchant cash advance is (and what it isn’t)
- The specific benefits and drawbacks of merchant cash advance financing
- The kinds of businesses or opportunities that can make the most of a merchant cash advance
- The business owners and entrepreneurs that should probably shy away from this financing opportunity
… And that’s just the tip of the iceberg!
As we move through this guide it will become a lot clearer to you whether or not these are the kinds of unsecured business loans you should be pursuing or if you are better off working exclusively on repairing bad credit and moving forward with more traditional loans.
We hope you find the details and answers below useful, and that you make the most of the leverage we are able to offer to create the kind of business you deserve!
Let’s dive right in.
What Exactly Are Merchant Cash Advances (MCA)?
The reason that MCA offers are so popular for entrepreneurs with bad credit is because they aren’t a traditional loan or financing package, but are instead in advance payment against the future income that your business will be collecting going forward.
MCA offers are pretty simple and straightforward.
The merchant cash advance service provider you choose to move forward with is going to provide you with a lump sum amount that is almost always instantly deposited into your bank account and available for use.
We’ll go into the application process in just a little bit, but it’s relatively simple and straightforward. Most entrepreneurs get access to their capital inside of 24 hours at the very latest, though some services are going to request you wait up to 48 hours to see the money hit your bank account.
After you have received your lump sum payment, the merchant cash advance provider is going to be repaid automatically by taking out a percentage of your daily merchant account receipts.
This is called the “holdback”, though it sometimes is referred to as a retrieval rate. Most of the time, you’ll be asked to pay back anywhere between 5% and 20% on each individual merchant account transaction until you have repaid back the entirety of these unsecured business loans.
The individual percentage of holdback or retrieval rate you pay on every individual transaction is going to differ depending on a host of conditions. The amount of money you are taking advantage of as a merchant cash advance will have a huge impact, as will the duration of your repayment timeline.
Most of the time, you’ll be able to receive anywhere between $2500 and $250,000 – even if you have bad credit – and the average repayment timelines for these kinds of unsecured business loans can stretch anywhere between 90 days upwards of 18 months or more.
Again, we want to make sure that savvy entrepreneurs are aware of the fact that merchant account transactions will be hit with the holdback charge immediately after you have the MCA funds you requested deposited into your bank account.
This is part and parcel with this kind of financing opportunity and there’s no way to avoid these kinds of transactional charges from hitting your books. It’s just the way that MCA financing opportunities work, and it’s something that you as a business owner have to cozy up to if this is a lending solution you want to move forward with.
A huge factor that plays into how much you are going to be able to borrow with this kind of lending opportunity is the amount of average credit card sales you process through your merchant account every month.
Every merchant cash advance provider is going to want to have a look at your transactional receipts for anywhere between the last three months and the last six months to get an idea of how much of a cash advance you are eligible for.
Most of the time you’ll be able to get anywhere between 50% of your total merchant account receipts and 250% of your merchant account receipts (with most of these kinds of loans coming in at the $2500 and $250,000 figures we touched on above).
Highlighting the Advantages of MCA Opportunities
Compared to some of the other nontraditional lending opportunities you can move forward with today, particularly as an entrepreneur with bad credit (or at least less than perfect credit), MCA solutions have a lot of advantages others do not.
Smart, strategic, and savvy business owners have been utilizing these kinds of lending programs for years. They allow you to immediately improve your cash flow, increase your assets instantaneously, and allow you to take advantage of new opportunities you would have inevitably missed out on otherwise – all without a whole lot of downside on the backend.
To help really bring home the benefits of a merchant cash advance lending opportunity we want to highlight just a few of the big benefits you will be able to enjoy should you go in this direction.
Simple And Straightforward Application Process
Applying for MCA unsecured business loans is about as simple and as straightforward as it gets.
A lot of the top services in the industry make their services available 100% online, giving you or any other entrepreneur the chance to apply for, get approved, and get funded for MCA loans on a 24/7 basis – from anywhere you have internet access.
Most of these applications can be completed inside of 15 minutes or so, and the applications that require a handful of supporting documents usually make it easy to upload and attach these files for a speedy approval, too.
From time to time (particularly if you have beyond bad credit) your approval may be paused so that a loan approval specialist can reach out to you directly and help move the process along more expeditiously.
In these situations, you’ll usually have to provide a little bit of extra documentation before approval, documentation that usually includes your business tax returns, bank account statements and information, and a bit more of your merchant account processing history.
Almost Instant Funding
If you are approved for these unsecured business loans you’re going to be overjoyed at just how quickly you receive the funds that you have been cleared for.
This is one of the biggest advantages of these kinds of loans and honestly why so many entrepreneurs choose to take advantage of these lending opportunities over many others. MCA providers can usually clear a funding transaction in a handful of hours, getting you cash almost immediately after your approval – and certainly within a 24 hour to 48 hour block of time.
This is particularly advantageous for entrepreneurs that are looking to utilize these bad credit business loans to shore up cash flow in the short term, to take advantage of opportunities that presented themselves out of the blue, and to build and grow your business knowing that the new revenue coming in will more than cover these unsecured business loans.
You don’t have to worry about having perfect credit
During the economic collapse of the mid-2000s traditional lenders really started to pump the brakes on offering any kind of financing package to small business owners and entrepreneurs with anything less the and picture-perfect credit.
Who could blame them.
At the time, the economy was in a full on meltdown mode and had very little signs of turning around anytime soon. Businesses were folding up at record numbers, business owners that had otherwise perfect track records were missing payments and defaulting on loans, and traditional lenders were more exposed than they had ever been in the past.
Today, the economy has been built back up and is essentially taking a rocket to the moon (success today is easier than maybe ever before) but nontraditional lenders are still balking at the idea of giving anyone with bad credit – or even just average credit – access to lending opportunities.
Merchant cash advance providers do not have that hesitancy.
Instead of being gun shy about offering these kinds of unsecured business loans, MCA providers are not requiring you to have picture-perfect credit to leverage these loans. Your ability to be approved and to receive funding has a lot more to do with the consistency of your merchant account transactions as well as how long you have been in business.
Your credit score is all bought a nonfactor in these kinds of decisions.
That’s a huge plus for entrepreneurs with spotty credit, bad credit, or no credit that still want to be able to create the kind of business they’ve always dreamed of with resources available through MCA lending solutions.
The Drawbacks of MCA Loan Options
This isn’t to say that merchant cash advance opportunities are without downside or drawbacks.
You’ll need to know exactly what you’re getting into before you sign on the dotted line, and you definitely have to do your research and due diligence.
As we mentioned above, the way that these unsecured business loans are repaid is through a holdback percentage charged on every single one of the transactions you clear through your merchant account.
It’s a huge part of why so many people are able to take advantage of these kinds of loans, but if your pricing structure has been built in such a way that you need every penny of those transactions coming through into your business the odds are pretty good that MCA financing will fix your short-term issues while creating even bigger long-term ones.
On top of that, MCA financing packages aren’t going to be assigned a traditional Annual Percentage Rate that you have to pay back. Instead, you are going to have to pay something that is called a “factor rate”.
On the most MCA offers, the factor rate is going to come in between 1.1 and 1.5, which seems pretty low at first – until you crunch the numbers and realize that MCA lending options are some of the most expensive borrowing options out there right now.
Let’s say that you take advantage of an MCA worth $50,000. It has a factor rate attached 1.3, and you’ll be given a 12 month repayment term for the entirety of the loan.
Running quick numbers shows that you’ll be paying back a total of $65,000 on this loan in the next 12 months, a rate that is considerably higher than most APR’s – even APR’s of 30% or so. Some people find that the equivalent APR for the MCA they have leveraged would be much closer to 50% or 60% (and sometimes higher), really illustrating just how expensive these lending packages can get.
Again, it’s important that you know exactly what you’re getting into before you sign on the dotted line. Make sure that you review your details and all pertinent documents before you agree to move forward with these kinds of unsecured business loans.
At the end of the day, the right merchant cash advance opportunity may make all the sense in the world for you to take advantage of.
Incredibly flexible (you’ll be able to use the funding any way you see fit) and about as close to instant funding as you’ll see in the nontraditional lending industry – especially with the big sums of money you can get out of these lending packages – there’s a reason why so many entrepreneurs move forward with these kinds of financing solutions every year.
You do want to make sure that you’re only ever working with legitimate operations offering MCA packages, though.
Like the rest of the nontraditional lending space there are a lot of modern-day snake oil salesman out there willing to promise the moon and the stars when it comes to benefits and results, never telling you about the skyhigh fees and total repayment prices you’ll have to pony up to make the most of these “too good to be true” lending offers.
Do your research, knock out your due diligence, and focus on the little details – while crunching the total numbers of your MCA financing package – and you’ll have nothing to worry about going forward.