A merchant cash advance, also known as MCA financing, is a way for businesses to get working capital loans quickly. This type of “loan” is flexible and easy to use. Like all financing options, there are pros and cons that you need to know about. The purpose of this article is to answer FAQs about MCA financing so you can decide if it’s a good fit for your business.
There are several types of MCA financing, but most work similarly. Generally, you receive an advance of working capital that is based on your business’s credit card transactions. That’s why this type of financing has the word “merchant” in its name. You need a merchant account to use it.
Put simply, every time your customers pay you via a credit card, those funds are processed by your merchant account. When you have a lot of customers that use this method of payment, the amount of money passing through your merchant account may be substantial.
What the lender does is calculate your average monthly credit card transactions. This provides a good indication of how much money the lender can safely advance you. The more credit card transactions you process on average, the larger the advance you can qualify for.
Technically, MCA financing isn’t a loan. You don’t have to remember to make monthly payments — at least not in the traditional sense. Instead, this lending arrangement gives you capital upfront and then slowly deducts the value of the advance from your future credit card sales. This happens automatically, and it’s always percentage-based.
Imagine that you sell $10,000 worth of goods to business customers every month that pay with a credit card. You need to purchase inventory and turn to MCA financing. You apply for a “loan” of $5,000. The lender comes to an agreement with you for a fixed percentage that will be deducted every month to pay back the month. Let’s use 5% just as an example.
That 5% would be applied to your total credit card sales for the month. That’s a good thing for your business. If you sell a lot more than usual, like $15,000, the lender will deduct about $750 that month.
What if you have a bad month, maybe only selling $5,000? You’re OK. The lender will just deduct the same 5%, or about $250. This means you don’t have to worry about late fees.
Andrés GuzmánOctober 4, 2023My experience was nothing short of outstanding. PRM exceeded my expectations in every way.
ARMY 4LIFESeptember 29, 2023They have the best customer service! They treat you like family 😊
Mari M VelazquezSeptember 27, 2023The best company to do your loans with! Highly recommend it 😊