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    Merchant Cash Advance: All You Need to Know

    Merchant cash advance loans are rapidly becoming one of the most important products in the alternative lending market for small and growing businesses.

    Unlike the best online payday loans direct lenders' offers that have been around for many years, merchant cash advances are much newer additions to the lending marketplace. They are particularly beneficial for businesses that take a large percentage of their income via debit and credit card machines.

    I’ve noted that many ambitious, growing businesses are still wholly unaware of what a merchant cash advance can achieve for their future prospects and only know about the best online payday loans, so I’ve put together a comprehensive guide to business cash advances that can give you the investment you need, when you need it.

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    What is a Merchant Cash Advance Loans for Small Business?

    Instead of getting a payday advance online, a business cash advance is a more intelligent alternative finance option for small businesses. That’s because the amount you can borrow is linked directly to the amount of funds your business anticipates taking in credit and debit card transactions.

    Put simply, any business that utilizes a debit and credit card terminal to accept payments from consumers will have a provider for their card terminal. When it comes to merchant cash advances, lenders work closely with your business’ terminal provider to provide total visibility over your cashflow from credit and debit card transactions.

    Subsequently, there’s no requirement for credit checks, as prospective lenders can quickly ascertain how much your business makes in a typical month and can therefore propose a loan figure and repayment period as quickly as safe online payday loans.

    What is Holdback?

    As part of most cash advance loans, the lender will require your business to set aside a small percentage of your daily revenue generated from debit and credit card transactions. This figure is withheld and repaid to the lender to pay off the lump sum received i.e. the merchant cash advance.

    So what is holdback? This percentage of income that’s set aside is what's known as the “holdback”, and will continue until the entire merchant cash advance is repaid to the lender in full.

    How Does a Merchant Cash Advance Work?

    Merchant cash advance companies work in a slightly different way to conventional business loan firms. In simple terms, a merchant cash advance requires your business to sell your future credit and debit card sales at a discount figure, so that you can get your hands on a lump sum up front.

    The holdback – the percentage of your daily card sales – will be sent directly to the lender via your card terminal provider, which means that you have no risk of missing payments, like you might have with even the best online payday loans. The similarities with quick cash payday loans are that the interest rates for merchant cash advances and payday loans are agreed at the very start of your borrowing.

    Legality of Merchant Cash Advance

    Some people have called the legitimacy of a business cash advance into question, claiming this type of alternative funding is illegal. In the US, the Federal Trade Commission (FTC) has launched a thorough investigation into cash advance loans online due to potentially unfair contract terms imposed by online payday loans direct lenders.

    However, the reality of the matter is that merchant cash advances are not meant to be viewed as loans and are therefore almost wholly unregulated. They aren’t subject to usury laws or banking laws such as the Truth in Lending Act.

    Merchant cash advances are therefore not prohibited and are designed to work along the same lines as a credit line for businesses. While a conventional credit line is lent to firms based exclusively on their credit history and profitability, as are the best online payday loans instant approval firms, business cash advances are only concerned with a company’s track record in terms of sales and how they are performing with credit and debit card transactions.

    The Main Benefits of MCAs

    Before you take the plunge with a quick cash advance online for your business, it’s important to educate yourself fully about all the benefits and drawbacks of a merchant cash advance.

    Some of the pros make it obvious as to why retail businesses should seek this form of alternative finance instead of quick cash payday loans, with quick and easy online payday loans often subject to extortionate rates of interest.

    Quick Money

    If your company requires a much-needed injection of cash, a business cash advance is one of the fastest ways to do so. You can get a swift decision on your advance that does not have implications for your firm’s credit score. If you are successful, you can receive the agreed lump sum in a matter of hours.

    Easy Application

    The application process for a merchant cash advance is much more straightforward than applying for a personal or business loan. The application does not scrutinize your credit score, it merely seeks to understand your sales history to demonstrate that your company has enough sales volume in card transactions to merit lending of an agreed value.

    Unsecured, No Collateral

    All business cash advances available online are unsecured forms of finance. This means that you don’t need to provide collateral in the form of personal or business assets to lend against. Therefore, this type of cash advance offers reduced risk, particularly for new businesses with minimal credit ratings and trading history.

    Money Arrives Quickly

    If you need funds to make quick business decisions or investments, cash advances are a great way of keeping your company fluid and agile. The pre-agreed advance can be transferred into your company bank account within a matter of hours or the next working day.

    Credit does not need to be high

    Your business cash advance does not need to be an astronomical figure. Most alternative finance lenders will offer lump sums for as little as a couple of thousand dollars, which can be repaid through your card transactions over a period of months.

    Lower Payments with Lower Sales

    The repayments for business cash advances are usually made on a sliding scale, aligned with your total monthly card transactions. The pre-agreed repayments are often a small percentage of your card sales. If you have a quiet month, the size of your repayments will diminish as you’ll always repay the same percentage of your monthly card sales.

    Flexible Payments

    The flexibility of merchant cash advance repayments is particularly beneficial to businesses that experience fluctuating sales throughout the year, such as firms reliant on seasonal sales. You can be sure that you won’t be hamstrung by large repayments during months when sales are lower.

    High Limits

    Although the available credit of an online business cash advance does not have to be high, at the other end of the spectrum there are some lenders willing to lend five-figure lump sums against your debit and credit card transactions too.

    Drawbacks of MCAs

    Of course, we’re keen to ensure that this guide to MCAs is as objective as possible, so it’s important when discussing and comparing MCA lenders that we assess the potential drawbacks of an MCA merchant cash advance too. Here are a few reasons to be wary of an MCA cash advance.

    High APR

    When you include all the fees and interest involved in a merchant cash advance, it’s not uncommon for the annual percentage rate (APR) to range from 40% into three-figure percentages. These APRs are typically much higher than traditional bank loans available to small businesses, but still somewhat lower than quick online payday loans.

    Higher Payments

    The APR of an MCA is not just based on the total fees paid via cards, it’s also dependent upon how quickly you repay the advance. If you experience a period of weak card sales, your payments are spread out over a longer period and your overall APR subsequently falls. If your business experiences a period of buoyant card sales you might repay the MCA quicker, but pay a much higher APR over a shorter timeframe.

    No Oversight

    As we’ve already mentioned, merchant cash advances are entirely unregulated due to their structural nature. MCAs are commercial transactions, rather than formal business loans. Although MCAs are therefore free from federal oversight, they are still regulated by the Uniform Commercial Code in each individual US state.

    Main Types of Cash Advances

    There are four different types of merchant cash advance that your business can get its hands on, providing you can demonstrate regular and reliable debit and credit card sales:

    Short Term

    Short-term business cash advances are brief lending facilities that allow you to repay your lump sum over a period of months, rather than years.

    Long Term

    The longest common period for a merchant cash advance is up to 24 months. Any longer and the lender is taking a bigger risk that you will potentially default. That’s why short-term MCA facilities tend to be more readily available.

    Multiple Position

    In some cases, your business may find itself in need of additional finance before your first MCA has been fully paid off. It’s possible to secure a second MCA with the same lender or an alternative lender.

    Consolidation

    The downside to having multiple position MCAs is that you can very quickly accrue multiple MCAs with multiple holdbacks at different rates of interest. If your business is in this position, you can seek a consolidation MCA that combines all existing MCAs into one long-term repayment plan.

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    How to Apply for a Merchant Cash Advance Loan

    • Calculate how much your business wishes to borrow or qualify for from merchant cash advance companies (normally no greater than 100% of average monthly card sales)
    • Check that you meet your preferred lender’s eligibility criteria (tends to be less stringent, like payday cash loans)
    • Agree on a percentage of daily card sales to put towards your repayment (usually between 2%-25% of revenues)
    • Finalize the application and receive the funds directly into your bank account
    • Begin repayments of your MCA the very next working day (like a payday advance online)

    Top 3 Merchant Cash Advance Loan

    OnDeck 

    A merchant cash advance is a lump sum of money that’s provided as an advance on your credit card sales. It’s a great financing method for businesses that process a high volume of card transactions, for example. OnDeck’s merchant cash advance loans are available in amounts ranging from $5000–$500,000 and are funded on your terms only. It takes less than ten minutes to fill out one of their application forms online as all you’ll have to do is enter the basic information about your business. Once that part of the process is completed, your dedicated loan advisor will be in touch within one day of your application being processed to let you know whether or not your loan has been successful. 

    If your loan has been successful, you’ll receive your money within 24 hours. OnDeck’s merchant cash advance loans are a fantastic alternative for businesses that may have previously struggled to access the finance they need. 

    Kabbage 

    One of the biggest benefits of merchant cash advances is that they provide an opportunity for growing businesses to get cash fast, with a limited amount of paperwork required to actually process the loan. As everything’s done online, there’s no lengthy paperwork to fill out, so taking out a merchant cash advance with Kabbage couldn’t be any easier. You can use a merchant cash advance through Kabbage for a number of reasons: perhaps your business is new and won’t qualify for traditional financing, or you’re only seeking a loan for a short-term cash injection. 

    One of the things that sets Kabbage apart from other lenders is its personal service. Its in-house team of experts is able to help with everything from managing your account to making the most of your capital. You can always trust the advice the team provides and Kabbage is certified for its commitment to customer privacy

    Lending Club 

    Lending Club can help your business discover the best merchant cash advances that are out there. The company has developed a solid reputation over the years for helping businesses take control of their debt and expand in their markets. It’s a great option for small businesses with underwhelming credit scores that still need access to high amounts of finance. That means if your loan or application has already been rejected by several other lenders, there’s a likelihood that Lending Club may be able to help you out. 

    Lending Club offers loans of up to $350,000 but your business will need to have been operating for a minimum of two years in order to access its loans. It uses a technology platform to assess the risk of lending to your business and will conduct two credit checks during your application. If your business is successful, it’s worth noting that the interest rate for merchant cash advances is significantly higher than traditional loans – but this is the same across most other lenders too.

    Merchant Cash Advance for Bad Credit

    It can be very challenging to secure conventional business capital when your company has a poor or non-existing credit rating. Cash advance online bad credit lenders are your golden ticket to getting investment as a fledgling  start-up with little or no credit history.

    Just like online payday loans for bad credit, direct lenders will move quickly to lend to you, providing you can demonstrate a consistent level of short-term income from debit and credit card sales.

    My Conclusion

    In my view, a merchant cash advance can be a legitimate lending option for business start-ups that need cash quickly to grow. Most merchant cash advance companies have a low barrier to approval, which offers genuine reassurance to entrepreneurs.

    Just be mindful that MCAs will almost certainly never be as cheap as a conventional business loan from a bank. If you have lengthy trading history as a business and a decent credit rating, it may be more beneficial to go down the bank loan route.

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