MERCHANT CASH ADVANCE
A merchant cash advance (MCA) is a type of business financing that gives a business a lump sum of cash in exchange for a percentage of the business's future credit or debit card sales.
MCAs are a popular option for small businesses because they can provide quick access to capital without requiring good credit or collateral. Here are some things to know about MCAs.
How It Works
The lender takes a percentage of the business's daily sales directly from the payment processor. The percentage is called the holdback, and the repayment schedule is based on the business's sales volume.
How Is Different Than Loan
MCAs are not loans, and the lender doesn't report payment history to credit bureaus. This means that MCAs won't help build or strengthen a business's credit score.
How It Is Priced
MCAs use factor rates instead of interest rates. A factor rate is a decimal figure that shows how much extra the borrower will owe on the original amount. Most factor rates are between 1.2 and 2.5.
Benefits
MCAs can be a good option for businesses that need fast cash for temporary cash flow help, inventory, or unplanned expenses.