A merchant cash advance is often considered to be a loan alternative. In that it is another avenue of financing for small to medium-sized businesses that may, for one reason or another, eschew the traditional business loan. Although we will get more in-depth into precisely what the MCA does. The short version is as such: you receive a lump sum of cash upfront in exchange for a percentage of your future sales.
MCA Deep Dive: What Businesses Benefit From a Merchant Cash Advance?
Although nearly any SMB can benefit from an MCA, companies that process sales in debit cards and/or credit cards fare the best. This is because of the way that the merchant cash advance is set up. As options have progressed, it is presently possible for companies that process most of their sales via alternative methods to profitably use a merchant cash advance when a business loan is not favorable. This leads us to the next section. This involves the different ways that you can now set up an MCA between your business and the merchant cash advance company.
The Multiple Set-Up Options
One type of agreement favored by merchants is the daily withdrawal option, which allows the merchant cash advance parent company to make money every day or week from your sales. The exact amount is dependent on your monthly revenue and is static. It doesn’t change with the sales season and can hamper you when sales are down or be a boon when sales are up. A proper and astute assessment of your projected sales is imperative before choosing this option.
The second type of MCA is the more common type requested and tendered. It involves taking a percentage of your periodic sales. With the exact period agreed upon in the contract – daily or weekly; the company deducts a fraction of your sales. This means that in seasons of low revenue, the MCA doesn’t hamper your business. In seasons of high revenue, it still doesn’t tax your cash flow.
For more information on the specific benefits of the MCA for your business, as well as other finance topics, don’t hesitate to reach out to DAL Commercial Capital.