It is best suited for small businesses or startups that need to receive a large amount of money quickly with minimal strings attached.
It is best suited for small businesses or startups that need to receive a large amount of money quickly with minimal strings attached.
If the future sales projections of your business look promising, but you need upfront capital to secure those projected sales, merchant cash advances may be for you and your business. MCA financing provides a short-term solution with instant cash flow. Typically, this is a financing resource for hopeful entrepreneurs and small business owners looking to cash in on a unique opportunity or to fund inventory for a large sale.
The MCA firm accepts a small business’ application based on minimal requirements and little personal information. The cash advance can be anywhere between a few thousand dollars to $200,000, depending on how much the business owner requests and what the financials look like.
If accepted, you will receive an amount of money that is calculated based on your future sales projections and risk. Most firms cap the lump sum at 250% of your companies’ current revenues for security reasons.
To repay the advance, the business will typically pay at a rate of up to 12-18% of sales on a daily, weekly, or monthly basis. This is called the holdback amount. If the business chooses to repay the advance with a fixed remittance, fixed daily withdrawals will automatically be removed from the account. This payment method does not fluctuate with the business’ sales.
The payment schedule is fixed and occurs either weekly or daily. The percentage that is agreed upon is held back from sales and is automatically paid to the merchant cash advance funder until remittance is complete.
The principal of the loan plus an additional 20% to 50% is withheld from profits until completely paid off. The additional costs are embedded in the factor rate, which is similar to annual percentage rates in traditional loans but is rigid and predetermined in the contract.
It is calculated based on the risk of the business by assessing sales projections, current financial situation, and historical monthly and annual sales. The stronger the financials and historical sales of a company are, the lower the additional costs of financing with a merchant cash advance.
Factor fees range from 1.1 to 1.5 on average. Keep in mind that this type of cash advance costs 10% to 50% more than the principal amount. Financing can be set up daily or weekly depending on your preference.
Here is an example: Your business gets approved for a $100,000 cash advance. Prior to the advance, the factor rate is calculated at 1.2 based on your industry, sales projections, and annual and monthly revenue.
If in the contract, remittance is 5% of weekly sales and your company brought in $5,200 in sales this week, then the MCA firm would automatically take $260.
Merchant cash advance financing requires a history of credit and debit card sales, a minimum monthly volume of sales, and minimum annual revenue. The lender will likely run a soft credit check, which will not hurt your credit score.
The minimum monthly revenue that MCA providers accept vary from $5,000 to $12,000 depending on the company. Some firms accept applications from businesses as young as 3 months in operation, but again, that is dependent on the provider.
Essentially, the better your business’ cash flow is, the larger the cash advance. Good cash flow means consistent or increasing sales.
You can be expected to provide business tax returns, credit card processing statements, bank account statements, and credit check authorization to get approved for the advance.
Perfect credit history is not necessary, but a decent credit score is preferred — 500 is the bare minimum.
Flexible Payments: The payments coincide with income from sales. This ensures that your company is not pinned against a wall with fixed payments that you cannot afford. MCA advisors do have a minimum repayment in the case that sales dip too low.
The restaurant, retail, landscaping, tutoring, and other up-and-down industries often use and thrive off merchant cash advance financing. Businesses in these industries experience volatile trends, often concurrent with seasonality. Cash advances help companies recoup and stay afloat even during down cycles.
Owners that do not qualify for traditional forms financing, like with the Small Business Association, because of a bad credit score, a poor bank statement, or too young of a business should turn to merchant cash advance financing. With MCA, capital is quick and easy to attain. You can funnel more resources to propel your business into success in a few short days.
For the first time, accredited investors outside of the MCA industry have the opportunity to invest in MCA funding opportunities through the use of our platform. We have essentially created a new asset class for the accredited investor. If you’d like to learn more about our platform, contact us today!
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