If a small business needs money quickly, a merchant cash advance could be a helpful solution.
A merchant cash advance (MCA) is a financial product that is an alternative form of business financing. Instead of using typical financing rates, MCA providers take a percentage of daily or, more rarely, weekly sales until you remit the advance. This type of financing has become more popular because of its flexible remittance and quick approval. In fact, merchant cash advance same-day funding is one of the biggest advantages for small businesses.
While merchant cash advances offer some significant advantages, they are also a riskier, more expensive form of getting needed cash for your business. You should know how much it will cost and how it works to determine if it’s worth the risk. Speaking with funding specialist, like the ones at Llama Loan, is essential in finding out if a Merchant Cash Advance is right for you, or if a different funding option suits your business needs.
A merchant cash advance is upfront working capital, that is funded to a business in exchange for future sales and is remitted by having a percentage of your daily or weekly sales go to the funder automatically.
Some scenarios where an MCA can be ideal include if the business:
To make applying and receiving a merchant cash advance easier, use Llama Loan comparison tools to find an offer that will help grow your business.
Merchant cash advances don’t use traditional business rates because an MCA is not one of the typical funding options. Because of this, it can be tricky to determine exactly how much a merchant cash advance will cost. You will need to know the factor rate, fees and how to estimate what the equivalent APR would be to compare it to other financial products.
Llama Loan can help you estimate costs as you look for merchant cash advance providers. We will help you evaluate offers to decide which will be the most advantageous for your business with our comparison tools. Get Started Today.
Instead of typical financing rates, merchant cash advances use factor rates. Factor rates are figures in decimal form that show how much you will owe on top of the original funding amount. Factor rates are usually between 1 and 2.
Providers determine factor rates by characteristics like business financials, industry, years of operation, the personal credit score of the applicant and debit and credit sales. In general, the riskier a business looks, the higher the factor rate it will receive.
Merchant cash advance providers can charge some or all of the following fees:
These fees are deducted from the amount of the cash advance. For example, if you apply for $10,000 and get charted for $1,000 in fees, you will only receive $9,000.
The holdback percentage or retrieval rate is the percentage of sales the provider takes daily. The percentage is typically between 10% and 20%.
To get the best estimate of the total funding cost, calculate the factor rate and fees into an annual percentage rate (APR). To calculate the APR:
You will likely see that the APR is much higher than with a traditional bank finance option. However, the costs can still be worth it for some businesses. With the help of an MCA, you may be able to profit where you wouldn’t otherwise. Merchant cash advance same-day funding in particular can be worth the high costs if it will give you opportunities for the long-term success of the business.
The holdback percentage or retrieval rate is the percentage of sales the provider takes daily. The percentage is typically between 10% and 20%.
Because the holdback is a percentage of daily sales, the actual remittance will depend on how well the business performed that day. This can make estimating your cash flow more difficult.
If cash flow is a struggle for your business, using such as large percentage of your sales could create a negative cash flow. When evaluating if an MCA is right for you, consider how much of your daily sales you can afford to lose.
Merchant cash advances don’t have as many requirements as traditional business funding. Because they are paid based on sales instead of your financial history, even new businesses or owners with bad credit may qualify. The most important qualification is a good sales record.
The process of applying for a merchant cash advance is relatively simple, especially with Llama Loan. All you need to do is supply basic information such as:
After you submit that information, Llama Loan will reach out to multiple providers for you and find the best offers available to you, whether it be a Merchant Cash Advance, or another type of funding option. Remittance generally starts the day after the contract is finalized. Get Started with Llama Loan Today!