What is it? And why not just get a loan from the bank?
Some merchant service providers offer merchant cash advances (MCAs) to qualified businesses in exchange for a percentage of their future credit card sales. A business that accepts a steady stream of electronic payments and has an established relationship with its merchant service provider (MSP) can apply for this kind of merchant lending program. The MSP looks into the merchant’s history of generating revenue through electronic payments, completes a risk assessment, comes up with a set of repayment terms based on sales and gives a lump sum to merchants who qualify. A holdback percentage is taken out of future transactions in order to cover the payback amount in a set timeframe. The merchant can also opt for a fixed daily repayment amount that doesn’t vary with sales in order to meet the repayment deadline.
MCA vs. Bank Loan
Merchant lending is useful for a business that needs quick access to capital and has historically reliable revenue to show that it can be paid back in a timely manner. Credit criteria to get a bank-issued loan can be more intense; MCAs are good options for well-established businesses that don’t qualify for a loan, but process a lot of electronic transactions and need startup funding for an expansion, replacing a depreciated asset, hiring new staff, launching a marketing campaign or getting any other big venture off the ground.
BankCard USA offers MCAs on a case-by-case basis.