How Merchant Cash Advances Work

A merchant cash advance or MCA refers to money that you borrow where you can repay it from credit card sales daily. It’s a unique way to try to get the money that you need. Here’s some information about how merchant cash advances work and what that means for your business as well as other options you might have.

Merchant Cash Advances Overview

It’s difficult out there for many businesses these days and as a result, many are attempting to do anything they can to survive. Some have looked to an MCA to keep the doors from shutting. An MCA is generally aimed at businesses that make their revenue largely from sales from debit cards or credit cards.

You can still try an MCA if you want to anyway, even if you don’t primarily do sales through debit or credit, but it’s often a bit rarer to do it that way. Technically speaking, institutions that provide MCAs say that their advance isn’t a loan. Instead, it’s more of an exchange. You get cash right away in exchange for giving away a percentage of what you make in the future.

Types of MCAs

  • Cash for a Piece of Your Sales-The traditional approach to an MCA is to give a percentage of your future sales to the institution that provides you with the cash.
  • Cash for Weekly Payments-On the other hand, it’s also possible to make it so that you repay the cash by sending a certain amount of money every day or every week right from your bank with Automated Clearing House withdrawals, or ACH, for short. The ACH approach to receiving an advance is now the most common type. ACH merchant cash advances are popular because it allows more types of businesses to receive advances without necessarily getting sales through credit or debit cards as much.

It’s worth noting that there are often fees associated with the weekly payments. They will continue automatically from your bank account until you have fully paid off the advance and any fees that make it worth the institution’s time. A factoring rate of 1.5 or under is common. This would make an advance of $50,000 contain fees of well over twenty thousand dollars.

Paying Off MCA’s

In order to pay off the advance, it often takes as long as an entire year or as short as a few months. If you are paying off an MCA that takes from your sales, then you have a certain amount of time to do that. The institution will take some percentage, maybe 10 percent, of all of your sales from that period, and keep going until you’ve paid everything off, including the fee.

In this situation, you’d pay $10,000 over the course of a month, paying hundreds of dollars a day off the top from all of your sales. This would change if your revenue went down since it’s a percentage. Especially in the time of a worldwide pandemic, your sales can fluctuate rapidly.

In the event that you had a fixed daily plan, it will all be written down. In general, the daily payments will be based on an estimate of how much revenue you’ll make in the current month, and withdraw daily based on that. The payment is always based on revenue, and the payments don’t tend to fluctuate based on what your current sales are.

Main Advantages of MCA’s

There are some definite advantages to how MCA’s work. Here are a few examples-

  • Fast Capital-One major advantage of MCA’s is that you can get capital quickly. This could be critically important in the case where your business will likely be on the verge of going under immediately if you don’t receive a lump sum of money right away.  This is particularly important during the days of COVID. Money later is often not going to help at all when you have bills that are coming in right now due to the pandemic and the depressive effect it may be having on your business.
  • Payment Amount NotSet-Since an MCA isn’t a loan, there are no fixed monthly payments. You won’t necessarily have a set schedule. Instead, you simply pay it back according to how much you make. This means you have less of a chance of falling behind and then needing to worry about where the money is going to come from to repay the money as a result. In an MCA, you will repay the money according to how much you make, on your own schedule instead of on the schedule of creditors. This flexibility should make it much easier to get to where you want your business to be.
  • No Credit Checks-Many MCA’s don’t affect your credit at all. The reason for this is that an MCA is not technically alone, it is actually something else altogether.  You are selling future sales for capital now instead. This means that you won’t have to worry about separate payments since it’ll be coming out of what you make.
  • Credit Score Allowances-Some companies that offer this option will also make it so that you don’t have to worry as much about your credit score in general. Many businesses hit by COVID may have a lower credit score right now, after all, which means that that score may not really reflect the actual viability of that business under normal conditions. This doesn’t mean it doesn’t matter at all, but it does mean that you might not need a credit score that is exceptional in order to get the MCA that you need.
  • Eliminate Some Stress-Many businesses these days are in highly stressful situations due to what’s happening. The important thing is to survive the immediate problem. A merchant cash advance can keep the wolves from the door and keep those doors open. Doing so means that you can then relax a bit. You won’t have this huge problem sitting over your head anymore. It’s well established that people who experience less stress receive all sorts of health benefits for it, whereas letting stress spiral out of control can make it much more difficult to run your business.
  • Simple Application-Many options for receiving money can be complicated and take a long time to come to fruition. In contrast, applying for an MCA is a relatively simple affair. You can usually fill out the process online in just a few minutes, and most companies will be able to respond to you quickly as well.
  • Freedom with How to Use the Money- Some loans require you to use the money that you gain in a specific way. However, with MCA’s you have the freedom to use the advance in any way that you see fit, giving you full freedom to get your business back on track in any way that you deem necessary.

Getting Started

The risks of relying on the government are numerous. Most recently, a “payment protection plan” extension for small businesses looked like it would pass, but then it ran into trouble with the president threatening to veto it. Regardless of what happens in the short term, it’s a fact that relying on any other kind of relief that’s not a solid loan comes with serious downsides.

You either aren’t going to know when the relief is coming, or how consistent it will be, such as with government options, or you have to worry about long term credit problems with other possibilities

In the end, the best possible option is almost always to get a loan from a company that you can trust.

Getting the Help You Need Now with Moby

One option for getting the money you need quickly is to work with MobyCap. They offer loans, MCA’s, and other options. There are several advantages to using MobyCap to get the infusion of capital you need to save and revitalize your business. These include the following-

  • Funds in One Day-Instead of waiting around for everything to clear, you could receive your funds from the loan as quickly as possible. After all, if you need the funds now to keep your business afloat, having it approved shortly after you need it won’t be much of a comfort.
  • Advisors-Instead of making your way through a confusing contract on your own, you will have the ability to consult with an expert to make sure that the loan you apply for is exactly the kind that you want.
  • Protections- MobyCap is considered a loan, so you will have the traditional protections from the federal government to make sure that everything is fair.

For more information about receiving the funds you need to help your business survive in this time of chaos, please make sure that you don’t hesitate to go ahead and contact us today. The sooner you contact us, the sooner we can help you find the funds that you require with reasonable rates and stability instead of unprotected percentages of triple digits.

A MobyCap loan could be the solution you’ve been looking for the whole time.

To move forward today, contact us by email at info@mobycap.com. As a BBB-accredited business, we have experience serving all industries and welcome the opportunity to work with your organization.

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