Almost every small business owner will experience a working capital shortfall at some point and need access to immediate cash. In today’s financial marketplace, no matter how good a business’s financial health is, it can be difficult to obtain a traditional bank or SBA loan. If your credit history is less than perfect, it can be almost impossible. For business owners in need of immediate, short-term funding, these loans may not be the best option. There are a variety of alternative financing options that can offer fast, effective funding, including the merchant cash advance.
Merchant Cash Advance
A merchant cash advance, or MCA, is not a loan. It’s the sale of future receivables. The alternative finance company will purchase these receivables at a discounted rate, providing the immediate capital the business needs. While they will take your credit score and the overall health of your business into consideration, the alternative finance company reviews the last three to six months of your credit card sales revenue. This will give them a basis for estimating your future credit card sales. Then they will determine how much your business qualifies to receive.
While the terms of an MCA can vary from one provider to another, the typical repayment period is less than a year. You collect payments as an agreed-upon percentage of the business’s daily credit card sales using one of two methods: split withholding or lockbox withholding.
With split withholding, the merchant’s credit card processor automatically makes the payments. With lockbox withholding, credit card revenue is sent to a special bank account. Then the bank divides it based on an agreed-upon percentage. Lastly, sends both the finance company and the business owner the appropriate amounts. This type of funding option allows the business owner to get the cash they need without going into a long term loan agreement and taking on additional debt.
What if a Business Doesn’t Accept Credit Card Payments?
The type of merchant cash advance that is most commonly known does require that a business accepts credit cards. If you think your business could benefit from an MCA but doesn’t accept credit card payments. There is another option – the ACH cash advance. This type of funding is very similar to a regular MCA. The main difference is that the bank account deposits and bank statement cash flow is used to determine the amount of funding. A business can receive as well as the repayment terms.
Once funding has been provided, the finance company will receive repayment via an ACH deduction directly from the business’s bank account on a daily or weekly basis. ACH stands for Automated Clearing House, which is a network that coordinates electronic payments and automated money transfers. With an ACH advance, a fixed daily payment is required rather than a percentage of the actual daily sales revenue.
Is a Merchant Cash Advance Right for Your Business?
If your business needs an immediate influx of cash, a merchant cash advance can be a great solution. Getting the cash you need when you need it can keep your business on track and moving forward. There are no restrictions on how you use an MCA, unlike a bank loan which is usually accompanied by a covenant. You retain complete control with an MCA.
It’s important to work with a knowledgeable and reputable alternative finance company. At CapFlow Funding Group, our team of professionals will evaluate your business’s unique situation and help you determine which funding option would best suit the company’s needs. We service many different industries with a variety of different funding needs. In addition to merchant cash advances, we specialize in factoring and other methods of small business funding. Contact us today!
