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Home » Featured » Merchant Cash Advance (MCA): The Right Choice For Your Business?

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Merchant Cash Advance (MCA): The Right Choice For Your Business?

  • August 23, 2022

If you’re a business owner, you’re probably acutely aware of the risks caused by cash flow struggles. When the money clients owe you and the costs you need to pay for your overheads don’t quite line up as you hoped, you can find yourself in a sticky situation.

 

One way to give yourself some extra flexibility is to opt for a Merchant Cash Advance (MCA), a type of financing designed to be paid off quickly using the money from future sales. They’re flexible, convenient, and often involve fewer hurdles than other loan types.

 

Sound like something that could ease your struggles? We’ll run through exactly what a merchant account is, the pros and cons they offer, and whether opening one is the right choice for you.

What is a Merchant Cash Advance?

A Merchant cash advance (MCA) is different from other loans because, instead of you borrowing over the long-term and repaying the sum back in fixed monthly instalments, you’ll use future revenue to pay the money back quickly. Your repayments will generally be a small percentage of future sales (around 10%) that you can repay over a daily, weekly, or monthly basis. They will also include a small fee to cover the cost of the loan itself.

 

In most cases, the lender will look at the average value of your sales over time and use this to figure out how much to let you borrow. Other times, MCAs may be structured based on withdrawals you make from a bank account and you may pay as a fixed percentage of your revenue instead — but this is less common

 

Did you know? Although MCAs are granted on the basis that future sales will cover the loan value, they’re still unsecured — meaning that you won’t lose any assets if you fail to repay.

These are just some of the reasons that merchant cash advances in Australia make a great choice for businesses that sell goods or services to customers. Their primary use is to manage cash flow, but you can also use them for other minor purchases, such as sudden maintenance or professional services costs or equipment or inventory you need to buy.

But are they the right choice for you? To answer that, let’s look at some of the greatest benefits and things to consider.

Benefits of Merchant Cash Advance

1. Easier repayment plan

The biggest advantage of a merchant cash advance is the flexibility it offers. You know that future payments will be based on your earnings, so there’s no need to figure out how much risk you’re prepared to take on when it comes to the size of future payments.

 

Everything is taken care of. In fact, you won’t even need to worry about making the payments yourself as the money will be automatically deducted from your sales in most cases.

 

2. Receive funding Quickly

You also tend to get the cash more quickly than other loan types, with it being standard for borrowers to receive the funds in their bank account within just 24 hours when taking out a MCA — sometimes even faster.

 

3. Higher application approval

Compared to other loans, they also tend to feature an easier and less strict application process. Even better, you won’t need a high credit score (although a better score will always increase your chance of better rates) or a long history to be able to secure a loan. Instead, lenders will look at your sales to determine whether you’d be a good borrower.

 

4. Minimal Default Risk

MCAs also carry minimal risk of default since the money will be taken from your sales straightaway. Plus, as mentioned, a merchant cash advance for small business is unsecured, so there’s no need to put down collateral.

Facts to consider

Although merchant cash advances have some clear benefits, it wouldn’t be fair to say that they’re right for every business in every scenario. The greatest drawback is that MCAs are only suitable for short–term borrowing. If you want to borrow money to use toward a long-term investment or purchase, you’re better off taking out a standard business loan.

 

Some may find it convenient that payments are deducted automatically from sales, but for others, it can be frustrating to have so little control. This can make it harder to budget for the payments since it’s impossible to predict exactly what you’ll be charged (although you can make an estimation).

 

Also, merchant cash advances use card payments to figure out your revenue and what your repayments should be. This is fine for most companies in the digital era we live in today, but businesses that still rely on cash may struggle to be accepted.

Is Merchant Cash Advance right for you?

Merchant Cash Advance (MCA): The Right Choice For Your Business?

Merchant cash advances are an alternative form of business finance that are all about ease of use, and they work particularly well for smaller businesses and retailers that use card payments — or any company with fluctuating revenue.

 

However, they have a clear target audience: Companies that are either struggling to balance their cash flow or who need to make small purchases over the short term. If you don’t need money for these purposes, you may want to consider other types of small business loans instead. These are more suitable for those who want to make big purchases or make big investments to scale up their businesses, for instance.

 

For other sources of working capital, check out our new blog simple guide to Business loans and Finance 

How to get a merchant cash advance

As mentioned with Capify, taking out a merchant cash advance  is a simple process and easier than many other types of loans. In most cases, you’ll be able to file an application in a matter of minutes and receive a quote. If you’re lucky, the money could be within your bank account within 24 hours.

However, you should be prepared to offer relevant information, such as your income, estimates for future income, and accounts from your credit card and bank accounts. Your sales will determine how much you can borrow, so bear that in mind beforehand.

Fund your business in 1,2,3

No loan is suitable for everyone or everything, but merchant cash advances are more inclusive than most. If you want a flexible and convenient financing source to help you manage cash flow or cover small costs over the short term, you’re in luck.

At Capify, it couldn’t be easier to apply for a merchant cash advance (MCA). We’ve made the application process as simple as possible so you can get the funds into your account and get back to what you do best as quickly as possible. Why not get started today to see if we could be a match? or  Or, if you’d prefer to talk to a member of our team, we’d be happy to guide you through the process. Give us a call today on 1300 760 930.

Considering finance but unsure where to start? Give our team a call on 1300 760 930 or click Get Started. We’re here to talk through your needs and help you access funds in as little as 24 hours.

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