Achieving your long-term goals as a female entrepreneur is often only possible with the help of some form of financing, and while these can be an invaluable source of income at a time when profits are but a distant dream, merchant cash advances may also be worth considering.
Never heard of a merchant cash advance before? Worry not, with the following guide, you’ll soon know everything you need to know about them, and whether they could help your small business:
What are MCAs?
Different to business loans for women from a traditional bank, merchant cash advances come from lenders who will review receipts from your credit card to help them assess your financial needs, and your ability to pay them back.
When you sign a contract with a lender, it will determine how much you’ll get and at what rate of interest; note that these can vary significantly from company to company.
What an MCA lender is doing when they enter into an agreement with you, is agreeing to buy future sales transactions that your business will produce, while providing you with an instant pot of cash. Unexpected repairs, for example, are a great example of what the money from an MCA could help a business owner with.
What is involved with an MCA?
Although not as rigorous as the process involved with a traditional loan, MCAs do come with stipulations that it’s important to be aware of before applying for one. Below are some of the terms found on an MCA contract:
- Advance amount
This is the amount agreed upon by both parties, that will be given to you in the form of an MCA. The amount will depend largely on how much you need, and how long you are comfortable paying it back for from your sales.
- Payback amount
Bigger than the advance amount due to lender fees (known as a factor) charged on top of the money being loaned to you, in some instances this figure may be a lot higher than other types of loans.
- Holdback
An important factor to consider, a daily amount must be held back from transactions carried out on your credit card, and the viability of this can only be determined by accurately assessing your sales.
What are the fees and costs associated with an MCA?
Several factors can impact the total cost of your MCA, such as the lender, the terms of the contract and the state your business is operating in.
Is a Merchant Cash Advance right for your small business?
Let’s take a closer look at the pros and cons of an MCA to help you decide whether it would be right for your business:
Pros
The indisputable advantage of an MCA, is that you can get your hands on money for your business, fast. Without the need for any collateral to provide back-up for the loan, and not so much cause to be concerned about your credit score, merchant cash advances come with payment options that are more flexible than traditional loans, too.
Cons
With a factor added on to the amount you’re required to payback, should you experience a lull in sales activity, you could start eating into your profits to cover it. It’s also worth noting that because MCAs aren’t regulated, the payback amount can often be higher than if you’d sought a traditional loan through a bank, which sometimes leaves businesses struggling to cover the amount they owe.
Is it right for your business?
Using an online MCA Calculator can help you better decide whether an MCA is right for your business at this moment in time, but in general, they are best suited to smaller businesses who need an injection of money to help them function better and succeed. Bank loans aren’t always available to small business owners.
If you’re a small business owner needing to raise some capital, and fast, an MCA might just give you the helping hand you need.
