GadCapital explains – Merchant Cash Advance

Merchant cash advance

One of the fastest ways to fund your business is to get a merchant cash advance. A merchant cash advance is different from normal term loans. Instead, it is a cash advance given to businesses against future sales. One of the reasons why MCA is good for your business is that as a business owner, you can apply for the funds and get it rather quickly. In some cases, MCA can be approved within 24 hours. 

Lenders who offer MCAs do not use the same criteria as banks to evaluate the risk of lending. Rather, they take into consideration the business’s daily receipts to determine whether the company can repay the advance on time.

Because of this, the interest rate charged on MCA  s is usually higher compared to other forms of financing. It is therefore important to familiarize yourself with the terms and conditions before knowing what you are getting yourself into.

What is Holdback?

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In the context of merchant cash advances, this is a percentage of the daily debit and credit card receipts that the lender keeps in reserve until the MCA is paid in full.

Usually, the more transactions the business makes with credit cards the faster the advance will be paid. If at any given day these transactions reduce, there will be less withdrawal from the merchant account which means that full repayment will take more time.

What is the difference between the interest rate and holdback amount?

The holdback amount is quite different from the interest rate charged to the business owner for the merchant cash advance. Normally, providers who offer MCA charge a factor rate. Different from term loans, the factor rate isn’t amortized over the life of the MCA. Factor rates may vary depending on the MCA provider.

Why use GadCapital?

  •     Fast and easy applications
  •     Quick approvals
  •     You can choose your terms
  •     Get financial advice from loan advisors

Is MCA the best option for your business?

MCA can be considered when a business needs quick funding since they have fast approvals. But first, it is important to ensure that your business can afford the associated costs. Since MCAs have flexible requirements when compared to normal business loans, they also have a premium cost. Regardless of this, a good number of business owners have benefited from this business financing option.

Point to consider

Merchant cash advances are not the same as normal loans. Hence, your payment history will not be reported to the credit reporting agencies. This means that the advance will not affect your credit score either positively or negatively. The advance rates also vary from one provider to another. This rate can also be higher than the traditional term loans. You should, therefore, ensure that you go through the terms and conditions before signing the contract.

Are there alternatives to MCAs?

Yes. A short term loan is one of the options that many business owners consider as an alternative. If you have excellent credit, you can also qualify for a business line of credit to help with the day to day business operations.

GadCapital also offers short term loans with a repayment term of just a few months. You can also get an installment loan with weekly or daily payments. These loans are flexible since the payment is spread throughout the loan term rather than paying the whole amount in a lump sum.

If you make payments on time, GadCapital will send the information to the credit reporting agencies and this will improve your business credit profile.