Ever found yourself in a pinch, needing quick cash to jump on a business opportunity or solve an unexpected problem? That's where a merchant cash advance comes into play, offering a lifeline to small and medium-sized businesses.
In this blog, we'll break down how a merchant cash advance works and why it’s especially beneficial in sectors like retail, restaurants, healthcare, and hospitality. Towards the end, discover why Diversified Payments stands out as the top choice for merchant cash advances across different industries.Â
What Is a Merchant Cash Advance?Â
A merchant cash advance (MCA) provides businesses with a swift injection of capital against their future sales. Picture this scenario: your boutique needs to replenish its inventory with the latest trends before the peak season, or perhaps your restaurant requires an urgent kitchen upgrade to accommodate more guests. That’s where MCA is the best option.Â
Merchant Cash Advance vs. Bank Loan
Instead of waiting for a loan from the bank, which can take a while, a merchant cash advance gives you the money fast. You get the cash upfront, and then you pay it back with a portion of your daily sales. So, if you have a day with lots of sales, you pay back more, and on a slow day, you pay back less. It's flexible, adapting to how your business is doing.Â
This way, you're not stressed about fixed payments when sales are down. It's especially helpful for businesses that have a lot of credit card transactions, like shops, restaurants, and salons. With a merchant cash advance, you can quickly handle unexpected expenses or grab opportunities to grow your business without the long wait or complicated paperwork of traditional loans.
How Does a Merchant Cash Advance Work?Â
An MCA works by giving businesses a lump sum of money upfront in exchange for a portion of their future credit card sales. It's a bit different from a traditional loan because it doesn't have a fixed repayment term or interest rate. Instead, businesses repay the advance through a percentage of their daily credit card transactions.Â
When a business applies for an MCA, the lender looks at the daily credit card receipts to decide how much money can be advanced. They agree on a factor rate, which determines the total amount to be repaid. This rate usually ranges from 1.1 to 1.5. So, if you receive a $10,000 advance with a factor rate of 1.2, you'll need to repay $12,000.
There's no traditional interest rate, but the factor rate acts similarly, meaning the cost of an MCA can be higher than standard loans. Also, repayment starts immediately. A portion of your daily credit card sales goes to the lender until the advance, plus the agreed-upon amount is fully repaid.
And, of course, there's a contract involved in a merchant cash advance setup.
Usually, it outlines the advance amount, payback amount, holdback percentage (the daily percentage of credit card sales), and the factor rate. Ensure to understand these terms before signing.
Why Use Merchant Cash Advance?Â
Quick Access to Funds
One big plus of a merchant cash advance is how fast you can get the money. If your business needs cash quickly to restock inventory or fix equipment, an MCA can provide funds in just a few days. Unlike traditional loans, which can take weeks or months to process, MCAs cut down the wait time significantly.
Flexible Repayments
Repayments for an MCA adjust with your sales. This flexibility means that during slower business periods, you pay less back, and when sales pick up, you pay more. This system can help manage cash flow better since you're not locked into a fixed monthly payment.
No Collateral Required
Many traditional loans require you to put up collateral, like property or equipment. This can be risky because if you can't make the payments, you could lose important assets. MCAs, on the other hand, don't require collateral. This makes them a safer option for business owners who don't want to risk their assets.
Easy Approval Process
Getting approved for an MCA is generally easier than for a bank loan. Lenders focus more on your daily credit card sales and less on your credit score. This is great for businesses that have a solid sales history but maybe don't have the best credit.
Have a Fast, Flexible Financing With Diversified Payments
Getting a loan can be a challenging process for many business owners. Traditional banks often require extensive paperwork, collateral, and a strong credit history. This can be a roadblock for businesses needing quick access to capital. That's where Diversified Payments steps in, making the process of cash advance easy for you.Â
Our team simplifies the application process for a merchant cash advance. Here's what you need to know:
No Collateral Required: You don't need to put up your assets to secure the advance.
Credit Flexibility: Even if your credit history isn't perfect, you can still apply.
Fast Cash: Funds can be available as quickly as within 24 hours after approval.
How To Apply for Our Merchant Cash Advance?Â
Start by filling out our form.
Show your business's credit card transaction history to determine the advance amount.
Our team reviews your application promptly.
Once approved, you could have the cash in hand within 48 hours.
Whether you're looking to stock up on inventory, launch a marketing campaign, or manage unexpected expenses, our merchant cash advance service is designed to meet your needs without the hassle of traditional bank loans. With over 25 years of experience, we're committed to supporting businesses with transparent pricing, advanced technology, and top-rated support.Â