When you own a small business, there’s no end to the expenses you have to face. You are responsible for payroll, taxes, utilities and much more. To keep yourself and your business on track, ask yourself common questions that need to be answered by any successful business owner. How do you plan to grow? Where do you see your business in five years? What challenges will you face in the near future? How will you pay for everything and still make a profit? Profit is probably one of the most important reasons you started your company to begin with, but how do you grow when you’re just starting out?
Merchant Cash Advances, or MCAs, are cash advance programs built to help you receive working capital without the worry of huge monthly payments or looming deadlines. A finance company that offers these types of advances will pay a lump sum to your business in exchange for a percentage of your company’s incoming credit card sales.
MCAs can allow you to get the working capital you need for expansion, a bigger inventory or more employees. The cash advance is not a loan. It is, in reality, a sale of the portion of your future income. When you are approved for an advance, you agree to a certain percentage being debited from your daily sales when a customer pays with a debit or credit card. This is typically set up so that it comes directly out of the sale via your merchant account. You won’t have any checks to write, no due dates and no lump payments to worry about.
One major advantage of MCAs is that the advance is usually approved faster than a conventional loan. Also, the payments taken out of your sales are completely dependent upon what money you take in each day. If you’re in retail, you know that you’re going to have slow seasons. Your business can be affected by the economy, local events or even the weather. In cases where you’re just not bringing in the dough, it’s a relief to remember that your payments will be smaller as well.
For example, a small business might sell $40,000 of its future credit and debit sales to a finance company. The company providing the MCA will then collect their portion from the sales you process. The fee the finance company will charge typically ranges from 10 to 25 percent per transaction. This occurs on a daily basis until you’ve repaid the advance. This type of MCA is called Split Withholding.