A merchant cash advance (MCA) is a popular alternative funding source for businesses that might not qualify for traditional loans or other forms of financing. It allows businesses to obtain money from a lender based on their monthly credit and debit card sales, rather than their credit score and other business information. To repay the advance, your lender deducts a daily or weekly payment from your card sales.
While it’s a hugely popular method of financing, MCAs aren’t right for every business. If you’re considering taking one out and using it, here are a few tips to help.
Make Sure It’s the Right Fit
The very first thing that you need to do is determine if a merchant cash advance is the right solution for your business. Excellent candidates include small to medium-sized businesses that do a majority of their sales through credit and debit card sales. Common businesses that use MCAs include those in the retail and restaurant industries, such as small shops, restaurants, and cafes. Your credit card sales are a critical component of determining your eligibility, as an MCA is an advance on future sales.
Know Your Goals
You can use the funds from an MCA for any business-related purpose. Even so, nailing down the specific reason behind requesting the funds can help to increase your odds of approval and that you get what you’re seeking. Lenders like to know that you have a plan.
Gather the Essential Paperwork
While the amount of paperwork required is much less than that required for a conventional loan, you still need to provide certain documents when you apply for an MCA. Along with your credit card statements, you’ll also need to provide such things as bank statements, receipts, and running costs.
Avoid Delinquent Payments
While your credit score doesn’t play as much of a role in your eligibility, any lender providing an MCA still wants to be assured you’ll repay what they provide. If they find that you have a history of failing to make payments or that you lack the funds necessary to repay the advance, they’ll likely decline your application.
Read the Fine Print
Some MCAs can come with very high rates and additional fees, which can make a seemingly affordable advance incredibly expensive. Be sure to read the fine print before you sign anything.
For businesses that receive a significant number of credit and debit card transactions, a merchant cash advance may be an ideal funding solution. Before making your decision, be sure to understand all of your available options. With enough research, you’ll find the best one to fit your needs.