MCA - The cash you need today

Why a MCA (Merchant Cash Advance) may be what you need...

If you are looking around for the best financing option for your business, I have no doubt that you have seen the following terms:  MCA, line of credit, invoice factoring and many others.  We understand your frustration and the level of confusion you have attained.  The fact is that there is a myriad of lending options for your business in this day and age.  Long gone are the days where you were forced to seek help in the form of a loan from your local bank, and we all remember how helpful they were.   In the current day we have a multitude of financial products and alternative business lenders.

Today, however, we are going to concentrate on the MCA.  Some business owner’s don’t like them and some absolutely love them.   This product is a very efficient way to get cash into your business’ bank account.  The lending requirements are not as strict as the term loan or line or credit. 

Repayment of the MCA doesn’t have to be complicated either. With the MCA you dont have to worry about what your interest rate will be because you are not charged “interest” per se.  You will receive a Factor Rate.

#1 Factor Rate

We all know what interest is and how it can make a simple loan very expensive.  With every payment you make, the loan is then re-calculated and adds more interest to your loan amount.  Consider your mortgage for second.  You bought a house for $120k and you plan to pay on it for the next 30 years.   Did you know that by the time you reach the end of that loan you will have effectively paid twice the amount borrowed?  I will give you a few seconds to let that sink in.

The same goes with a Term Loan for your business.  The longer you pay on it the more it costs you. Now, a Factor Rate is similar to the interest rate as it does add on to the amount you are required to pay back.  The difference is that a Factor Rate is not re-calculated every time you make a payment.  It is a Fixed percentage of sorts.

Example:  You get a Merchant Cash Advance for $50,000.  To keep it simple they give you a Factor Rate of  10.  To figure out what you have to repay you simply take the amount borrowed and multiply it by 1.10.  What ever your factor rate is 10, 20 , 45 there will always be a 1.0 starting point.  a rate of 45 would be 1.45, 20 would be 1.20 and so on.

$50,000 X 1.10 = $55,000

$50,000 X 1.45 = $72,500

A factor rate of 45 is pretty extreme so you should expect a rate in the range of 10 to 25.  

#2 Easier to get

First thing’s first.  Your business has to be at least 6 months old but, older is definitely better.   The lender wants to know that you are in business for the long haul and not just a quick buck.  Your business has to be a legal entity i.e Limited Liability Company, Corporation, partnership  or Sole Proprietor.  You must be making at a bare minimum, $5,000 per month from multiple sources.  Some lenders want to see at least $10,000 a month in revenue.

The amount of time it takes to get the funds is much quicker with an MCA than a traditional loan.  Term loans can sometimes take several weeks to obtain.  MCA’s typically get deposited into your bank account in about 72 hours and the paperwork is substantially less.  You need 3 to 6 months of bank statements to show your revenue deposits.  They will also be looking at how often you overdraw your account.  This is a red flag for lenders as it shows that you cannot manage your finances effectively.

If your business generates most of its revenue via your Point of Sale system then the repayment becomes easier for the business owner.  Credit card sales are the optimal way to get and repay a Merchant Cash Advance but, they are not a requirement.  

#3 Quick Repayment

Many MCA lenders will determine a percentage to take from your daily credit card sales.  This is how the repayment is easier for you.  You will not have to send the lender any money because they will be getting their money from your POS sales.  It’s like a set it and forget way to pay off a loan. 

The percentage is generally small, ususally 2% to 5% so, how quick the repayment is depends on your daily sales.  This is a huge selling point for most business owner’s like yourself.  I mean, who really wants to be bothered with submitting a payment every day or every week until the amount you borrowed is paid back?