People Also Ask:
What Is The Holdback Rate?
An MCA is repaid to the funder by taking a cut of your daily credit card receipts. This cut is called the holdback rate, and typical holdback rates range from 5 to 12%. So your restaurant does $5000 a day in credit card receipts, and you agreed to an 8% retrieval rate. The MCA funder automatically gets repaid $400. You get the other $4600 straight into your restaurant’s bank account.
Because the fund transfer happens automatically between your credit card processor and your MCA funder, you never have to worry about late fees on your MCA. Since repayment doesn’t depend on your ability to pay on time, there’s nothing to report to a credit agency.
Can I Get a Merchant Cash Advance With Bad Credit?
MCAs are a valuable financing option for business owners with bad credit. It doesn’t rely on your ability to make timely payments. An MCA funder looks forward to your future credit card sales. The only backward look that interests an MCA funder is your most recent average inflow of credit card sales.
An MCA funder will usually want to see at least your last six months of credit card volume. They want to see how much your business typically processes in credit cards. This information helps the funder determine how much cash they’ll advance your business and under what terms.
Can a Merchant Cash Advance Improve Your Credit Score?
Unlike more traditional products, payments do not get reported to credit bureaus. This is because payments are made automatically via your business’s credit card processor. Hence, there’s no risk of falling behind on payments, since they require no manual effort on your part. This means that your payment history will have zero effect on your credit score.
However, any form of financing can theoretically improve your credit score by helping you pay off existing debts. Poor credit often results from missed payments on loans, credit cards, etc. If existing debts are keeping your score down, a Merchant Cash Advance can be used to pay off what you owe. This is one of the most common purposes of short-term financing in general.
Are Merchant Cash Advances For Failing Businesses?
This is a huge misconception that originates from the product’s loose requirements. But the truth is, bad credit does not mean your business is failing. Many business owners have bad credit because they had no choice but to use personal credit cards to keep their business alive when they hit an early speed bump.
Also, bad credit is far from the only reason to seek a Merchant Cash Advance. Since this product is not categorized as a “loan,” it does not show up as “debt” or a “liability” on your balance sheet. If you already have too many liabilities, adding another one could hurt your business credit score and make it difficult to obtain trade credit from vendors.
How Much Can I Borrow With a Merchant Cash Advance?
In most cases, you can borrow anywhere from 50% to as much as 150% of your average debit and credit card sales. This average is based on the past three months’ worth of data. However, more significant amounts can take slightly longer to appear in your bank account.
When Is a Merchant Cash Advance a Good Idea?
The number one requirement of a Merchant Cash Advance is strong debit and credit card sales. If at least 40% to 50% of your monthly revenue comes from these payment methods, you may be a good candidate for this product.
Other forms of short-term financing tend to carry fixed, monthly payments. This is just fine if your weekly or monthly revenue is predictable and stable. These products are also cheaper if you pay them back as quickly as possible. Thus, a Merchant Cash Advance may be a better choice if your revenue is more tumultuous, and you need more time to pay off the loan in full. Neither of these circumstances would make the loan more expensive.
Lastly, the accessibility of a Merchant Cash Advance isn’t affected by a lower borrowing amount. It might be more challenging to find a Business Line of Credit or Working Capital Loan for under $10,000. If you’re looking for a smaller amount and don’t want to take on unnecessary debt, a Merchant Cash Advance may be one of your only options.