Merchant cash advance lenders can provide a quick infusion of needed cash for a business that has significant credit card receipts each month. Merchant cash advance (MCA) firms fill a gap in the financial services industry, serving businesses that cannot access bank loans because of lack of collateral or bad credit.
This is why businesses may turn to MCAs in emergencies. A bed-and-breakfast is damaged in a hurricane. Insurance money helps with repair costs, but the local economy is so weak that the owner can’t generate enough income. A cash advance against future credit card receipts plugs the gap and helps the owner keep the doors open.
Merchant Cash Advance Lenders as Business Partners:
Unlike a payday loan, a merchant cash advance marks the beginning of a business relationship that can last over a year, until the advance is paid off. The advance may only take a few days to get, but the lender will be taking a share of receipts for several months to more than a year. The business owner may even need, or want, another advance before the first one is paid off.
Merchant cash advance lenders have to be used as part of an overall business strategy. Make sure the lender is a good resource, not just a convenient one, by screening potential lenders. Search ‘MCA lender’ or ‘merchant cash advance’ combined with an industry. Some lenders will be indexed by the industries they serve, but quite a few won’t be. A general search, combined with some quick phone calls will reveal which lenders are likely to be good business partners.
Merchant cash advance lenders are great emergency resource, but borrowing against future credit card receipts is not without risk.
Merchant cash advances come with a high cost of borrowing. Know what the loan will cost, including the premium the lender charges. While cash advances like this do not come with interest charges, the premiums, the cost of borrowing the money, can add up to an effective interest rate of over 100% a year.
Screen lenders in a couple of ways. A lender should know the customer’s industry and business processes. There should be good reviews and no outstanding complaints. If there are no good reviews of a firm, there should at least be no terrible reviews. A little Web research is all that should be needed.
Make sure the lender is licensed and regulated. Typically, this would be true, but unregulated online lenders and storefronts with no experience in lending against future credit card receipts may be out there. Stick with a business with a track record of lending to the relevant industry.
Cash Advances are a Business Tool:
While useful in many ways, a merchant cash advance should not be used in place of cash or credit. Like any tool, advances against credit card receipts must be used correctly. Treat merchant cash advance lenders as not only business services, but as partners who can facilitate access to cash when emergencies or unexpected opportunities arise.