Merchant Cash Advance Factors To Consider

merchant cash advance factors

What merchant cash advance factors should you consider as part of financing your business? It is one of a series of financial products that your business may need to consider for its future capital needs. Here is a list of merchant cash advance factors that you should take into consideration before selecting a financial solution for your business.

Does Your Business Fit the MCA Profile?

How high a percentage does your business revenue receive from credit card transactions? A merchant cash advance is designed for those businesses that receive a high volume of credit card sales. In addition, if your business is cyclical by nature, with highs and lows during the course of the year, an MCA will be beneficial for your business. If not, your business is probably better offer considering a different financial product.

Will Your Business Future Credit Card Sales Be Consistent?

Since a merchant cash advance is a purchase of a percentage of your business´ future credit card sales by the lender, your future business performance is important. Your future credit card sales will determine the rate at which you pay off the MCA balance. If your future business credit card sales decrease from forecast, you will slow down the MCA payments. This will lengthen the period of time of remitting the MCA balance and result in higher financing costs. Conversely, if your business credit card sales increase from forecast, your financing costs will be less.

How Much Capital Does Your Business Need?

If you decide on a merchant cash advance, does the lump sum capital serve your needs? Whether the purpose is to pay off debts, purchase of inventory, etc. the lump sum needs to be large enough to cover your business needs. The MCA lump sum offered by a lender will reflect your business´average monthly credit card sales, since this is the basis of repayment. It will vary by lender but is normally in the range of 1, 2 or 3 times your business´ monthly credit card sales. If this does not meet your business needs, you may need to consider a different financing product.

Does Your Business Have Expensive Debt?

An MCA lump sum of capital can help to pay off expensive debt, often related to your business using credit cards as a source of capital, whether personal or business. You should ensure that the lump sum is large enough to wipe out the expensive debt completely. Remember that unlike the use of credit card for business capital, your MCA cost is based on the amount and length of repayment, not interest rate on outstanding balance.

Is A Merchant Cash Advance The Best Financial Solution?

If your business has less than one year in operation, a merchant cash advance or business credit cards may be your only financial options available. Business credit cards, like MCAs, offer quick, short-term capital, however with relatively high cost on outstanding balances. If your business has a longer history, a small business loan with fixed interest and payment period or a line-of-credit may be viable alternatives for your business.  In both instances, the lender will require more scrutiny of your personal and business financial history.

Merchant Cash Advance Factors – Conclusion

There are a variety of merchant cash advance factors you should consider before deciding on your business’ capital financing needs. An MCA offers your business a variety of benefits that should be balanced base on your expectations of future business performance, need for capital and alternative financial options.

Please call us at (888) 213-3383 to help review which financial product best serves your business needs or Contact Us via Email.


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