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What is a Merchant Cash Advance?
A merchant cash advance (MCA) is not a loan, but rather an advance based upon the future revenues or credit card sales of a business. A small business can apply for an MCA and have an advance deposited into its account fairly quickly.
Merchant cash advance providers evaluate risk and weight credit criteria differently than a traditional banker might. An MCA provider looks at the daily credit card receipts to determine if the business can pay back the advance in a timely manner. Basically, the small business is selling a portion of future credit card sales to acquire capital immediately.
The Application Process
The time it takes to get approved for an MCA could be any where a few days to a week, depending on the provider. And once the application is approved, a business could see the funds in their account within two days.
The application process isn’t as complicated as a traditional loan, which often makes the merchant cash advance approval process a faster option. Here are the typical steps a business needs to take:
- Apply for the advance: The application is typically one or two pages and will require your social security number, business tax ID, and other information about your business.
- Provide documentation: You will likely be asked for Four months of credit card or payments processing data as well as bank statements.
- Get approved: It could be as quick as a few days, one week for your business to be approved for a merchant cash advance. (Provided the merchant business owner has a completed application with all documents needed to process the file.
- Set up the credit card processing: This type of funding may require the business to switch to a new credit card processor. It can be inconvenient to switch processors, but it is sometimes a necessary part of the approval for many MCA providers.
- Finalize the details: To use the previous example described above, the funding details might be something like this: a small business is approved for $10,000 and required to pay back $13,000. The merchant account will be debited 15% every day until the entire $13,000 is repaid. Make sure you understand when payments will start, because it may be as quickly as the next business day.
- Receive the funds: The money from the MCA will be deposited into the small business’ bank account and repayment via the merchant account will begin automatically.