5 tips for using merchant cash advance

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Merchant cash advances (MCAs) are one of the most common ways that small businesses choose to access quick capital in the modern world. Rather than acting as a traditional loan, which requires a lengthy process of applications and credit checks, alongside typically complex and opaque repayment terms, MCAs tend to […]

Merchant cash advances (MCAs) are one of the most common ways that small businesses choose to access quick capital in the modern world.

Rather than acting as a traditional loan, which requires a lengthy process of applications and credit checks, alongside typically complex and opaque repayment terms, MCAs tend to be used as a short-term bridge to keep businesses afloat and prospering in the event of any unprecedented cost they may be faced with.

The merchant cash advance system is pretty straightforward; the provider will give a business a large lump-sum payment, which will then be paid back via the lender taking a percentage of future debit or credit card sales.

The amount loaned and repaid varies significantly depending on the size and revenues of your business, but MCAs are generally viewed as an effective and easy way to address short-term cash flow issues. The industry is large and growing, so it’s important you approach an MCA equipped with the right knowledge. Here are 5 tips on how to make the most of your merchant cash advance.

Know Your Terms

The number of merchant cash advance providers is significant and all of them have different terms. For those still asking “what is a merchant cash advance“, know that there is no single answer. The industry is largely unregulated, meaning there are no limits on interest rates and repayment options. Most are fairly generous, however, so simply read the small print and ensure you use a reasonable provider.

Get Your Paperwork in Order

Although you won’t need as much documentation for a merchant cash advance as you would for say, a bank loan, you’ll need to be able to prove to debit/credit revenues in order to determine how much you can receive. For this, you’ll just need a few months worth of statements and receipts, as well as evidence of running costs and other outgoings.

Choose the Right Repayment Period

The repayment period for a merchant cash advance is typically quite a short window, ranging from a month to six months, so you’ll want to make sure you pick to right one. If your advance is simple to cover a one-off expense, pick a shorter window, but if it’s to cover something more long-term like a renovation, then consider a longer repayment period.

Debit or Credit?

Some providers will only operate by taking a cut of credit card sales, while some will only take debit. You’ll want to examine your revenue streams and see which is a higher source of income before opting for that one. There’s no point choosing a debit-based MCA if 90% of your sales are done via credit cards.

Keep a Strong Balance 

To get the best possible rates and terms on your MCA, make sure you have a healthy daily balance of funds, which demonstrate that you’re more than capable of keeping your business in the black. A negative daily balance will make it much more difficult to access the funding that you need.

MCAs aren’t for everyone, but they’re a proven and effective way to access funds in an efficient manner – just make sure you choose the right provider.

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