As a small business owner, it may be challenging to get funding from traditional loans due to the lengthy approval procedures. Other alternatives have strict credit requirements, which limits your ability to get the right amount. As a result, many entrepreneurs are going for merchant cash advance (MCAs). Read on to know more about what it entails.

What is Merchant Cash Advance?

An MCA is a cash advance for businesses that works as capital for your enterprise. Unlike other loans, merchant cash advance functions like a sales agreement since they aren’t covered under usury laws. Additionally, MCAs charge a fixed fee by multiplying the borrowing amount by the factor rate instead of applying interest rates. 

How it Works

Once you apply for an MCA, the lender assesses your credit card receipts to determine whether you can repay the funds based on your credit card sales. 

Some of the documents needed during application may include: 

Proof of identity
Business tax returns
Credit card and bank statements

If it’s approved, you should get the lump-sum within a few working days, just like getting a loan. 

How is it Repaid?

Typically, the lender of a merchant cash advance takes a certain percentage of your daily sales. Repayments can be from your connected MCA account, and it’s calculated based on total sales processed via debit or credit card. Alternatively, it can be via direct transaction from your business account through automated clearing house (ACH) withdrawals. In most cases, repayment time usually takes up to 18 months or less. 

Bottom Line

More and more upcoming business owners are choosing to fund their enterprises through MCAs. You can quickly get the funds you need, and the repayments are flexible. However, you will incur a higher cost than other loans, even when you repay in a shorter time. Still, a big chunk of your future sales will go towards paying back the advance cash.