What exactly is a Merchant Cash Advance?
Often times, small businesses are beset upon by situations where there is a cash shortfall or urgent need for some type of cash advance. In some instances, there is no collateral and most of the business income is from credit or debit card sales. In other instances, there may be a lack of creditworthiness or some type of issue that prevents qualifying for a regular bank loan.
That’s where a Merchant Cash Advance can come in nicely. It is usually a lump-sum amount that can be used in any way the merchant desires, and is considered a “short-term” loan. Often times it is provided in exchange for a predetermined percent of future credit card and/or debit card receivables. The term of the loan is usually no longer then 24 months, but usually ranges from 3-12 months, unlike more conventional loans that are often times much longer.
Why would I want one and what is the advantage?
Even though it is not technically considered a loan, vendors can and often do charge an interest rate which can be much higher than a standard loan interest rate. That is usually off set by the fact that the repayment is directly related to what is sold. That means that is sales are high, the repayment amount is higher, if the sales are down, the repayment amount is likewise, lower. In those types of situations, it is beneficial to be able to repay at an amount that is relative to the amount of income thereby leaving more funds for day to day operations.
How do I keep track of all of that?
That’s a great question and one that is easily answered. The vendor who issues the cash advance, institutes the agreed upon percentage which is automatically deducted from the actual sale at the time it is processed. There is nothing for you to keep track of. Statements are sent to which account for each transaction and advise you of the totals and balances. In some cases, the sales are split with part going to the business owner and the other part going to the financing vendor. Usually the money is deposited into the finance companies account and then redeposited back to the merchant, but, it’s a less desirable method as it creates a delay in the funds getting back to the merchant.
So, is an MCA a good option for me?
That can be determined by the amount of time it takes to repay the advance. When sales are slow, the repayment will be slow, which means the advance will take longer and cost more than expected. In addition, if the majority of sales are not from credit or debit cards, that too will slow down repayment and increase the costs. Even though it is a quick type of loan, and there is no threat of losing your home, it’s still something that has to be watched closely to ensure it doesn’t get out of hand.
The best time to apply for a Merchant Vendor Advance is before you need it. Don’t waste time and allow things to slip even farther behind, call now to ensure you have the funds that you need when you need them. Call Dynamic Capital today and get your approval now!