Merchant Cash Advance

You can upscale your small business with MCA financing. At CocoLoan, we have lenders in our network that can give you cash upfront. Find out if you qualify for one and get a merchant cash advance for your business today!

$2,500
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What is an MCA (Merchant Cash Advance)?

Merchant cash advances(MCAs) are a form of business transaction whereby a company receives money upfront, payable by its future income. This type of lending allows you to borrow money on the strength of your debit and credit card sales.

It’s important to note that a merchant cash advance lending is not a loan in the strict sense. Unlike traditional credit facilities, it does not have a fixed repayment term or rate and requires little paperwork.

Also, you do not incur debts when taking a business cash advance. Instead, the lender is merely purchasing your daily credit card income. That’s why lenders ask to see credit card receipts to determine if you are capable of repayment.

Generally, you will pay back this advance with a percentage of your credit or debit card sales in the future. While this financing method is suitable for short-term funding, it comes with relatively high-interest rates and fees.

How Do Merchant Cash Advances Work?

Although MCAs are not actual loans, they do involve lenders giving business owners a lump sum. The details of this transaction are usually determined by a merchant cash advance agreement between both parties.

In this agreement, you and the lender outline the advance and payback amounts. Your advance amount depends on your company’s financial strength and can range from about 50% to 250% of your monthly business income.

On the other hand, your repayment is calculated as a percentage of sales that can pay up the funding and fees. This percentage is known as the holdback, allowing the lender to withhold such an amount daily until the advance is fully settled.

Below are two ways in which you can structure MCA funding repayment.

Credit Card Sales

This is the most common repayment method for MCA lending. It involves the lender withholding a percentage of your daily or weekly credit and debit card sales. There is no fixed repayment term, so the percentages are deducted regularly until you repay the entire advance.

Bank Account Withdrawals

Fixed repayments from your business bank account are also possible on merchant cash advances. The lending company withdraws a fixed amount daily or weekly, irrespective of how much you earn during that period. This system is advisable if your business does not make significant credit card sales.

Pros and Cons of Merchant Cash Advance

Many borrowers perceive merchant cash advances to be a short-term financing option without the lengthy processes of actual loans. However, like every facility, MCA loans have their merits and downsides which we consider subsequently.

Pros

  • MCAs offer quick access to funding, without unduly long approval processes and paperwork.
  • Your business can receive MCA lending even if it does not have strong credit.
  • Compared to traditional loans, you and the merchant lender can agree to spread the repayment for as long as possible.
  • You do not need to have collateral for a merchant cash advance.
  • The MCA lenders do not dictate how you can spend the funding.

Cons

  • The repayment process for MCAs prevents positive business credit.
  • MCAs have a very high annual percentage rate, up to 200%.
  • The frequency of payments may negatively affect business cash flow.

How to Qualify for a Merchant Cash Advance?

Below are some characteristics of businesses that typically take a merchant cash advance.

Consistent Credit Card Cash flow

Any business with a constant cash flow from credit card sales can receive a cash advance from lenders. There are no restrictions on the basis of business size or industry. Moreover, the option serves newer companies that do not qualify for loans.

Companies without Asset Collateral

If you do not have enough or significant assets to use as collateral, you may still opt for an MCA. Most lenders will not request that you use the business property as a guarantee for the advance.

Low Credit Profile

You do not always need to have a good credit score to get a business cash advance. While some lenders may inquire about your credit ratings, most companies are more interested in your sales and capacity to repay.

MCA lenders may stipulate specific minimum credit scores or monthly credit card sales. Only businesses that meet such requirements will be eligible to receive an advance. This is to ensure that there are no repayment problems.

Documents Required to Process a Merchant Cash Advance

To successfully get a merchant cash advance from cash advance direct lenders, you must be willing to provide your company’s financial documents. Here are some of the documents necessary for evaluation.

  • Financial statements and credit card receipts
  • Business ID
  • Most recent tax returns
  • Credit report
  • Credit card processing statement

When Should I Consider a Merchant Cash Advance?

Before opting for a cash advance, you may want to consider assessing the pros and cons of an MCA. The peculiarities of some businesses may mean that the pros will outweigh the cons, making the transaction a good choice.

It is also important to determine if you are eligible by looking at the lender’s specific requirements. You should only process a request for an advance if you qualify. Otherwise, you may want to consider bank loans and other credit facilities before choosing an MCA.

Also, it is important to assess if you have enough monthly credit card sales to facilitate repayment. If not, you may end up hurting your cash flow and extending the repayment time far more than is expected.

How to Get a Merchant Cash Advance through CocoLoan?

Following this short five-step process will enable you to get a merchant cash advance with CocoLoan.

  1. Provide all the necessary details required in our online form. The form is available on our website and takes only a few minutes to fill out. Once you submit it, we’ll distribute your information to lenders in our network
  2. You will receive a number of offers from lenders. Compare them and determine which of the terms and APR is suitable for your needs.
  3. Finalize the advance and payback amounts as well as the holdback on your MCA with the lender. Afterward, you’ll need to sign an agreement and provide your bank details.
  4. Submit all necessary documentation that will enable the lender to make deductions towards repayment.
  5. The lender will fund your account with the money in as fast as 24 hours.

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What If I Am Unable to Repay the Merchant Cash Advance On Time?

It is important that you have the resources to make the repayment in your credit card or bank account. However, if you default in repayment, you can renegotiate the terms with your lender and extend the schedule.

Otherwise, failing to repay your MCA when expected may result in legal action against your business. In this case, your business could risk a poor credit rating. If under the advance agreement, you gave a personal guarantee, you could be personally liable.

Alternatives to MCAs

There are several alternatives if you do not wish to proceed with an MCA. For small businesses, you may opt for a bank loan or a line of credit. The latter option is often adopted by companies with good credit ratings.

You could also opt for equipment financing if you needed an MCA to purchase business equipment. For high-risk businesses or companies without credit card payments, a high-risk merchant account is a viable alternative.

Since high-risk businesses are prone to chargebacks, repayments on an MCA may be difficult. Consequently, the merchant account helps with credit card processing and provides special financing options for your high-risk business.

Another financing option is getting a short-term loan. There are various types available for small businesses, including overdraft agreements and payday loans. You can submit your information with CocoLoan to get connected with short-term lenders.

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Get a Merchant Cash Advance for Your Business Today!

Confident that an MCA is what your business needs? This article provides information on the benefits of an advance and when you should take one. Boost your business prospects and get a merchant cash advance with CocoLoan today.

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