A merchant cash advance (MCA) was originally structured as a lump sum payment to a business in exchange for an agreed-upon percentage of future credit card and/or debit card sales. … The term “merchant cash advance” may be used to describe purchases of future credit card sales receivables or short-term business funding.
When you receive a merchant cash advance, your business gains upfront working capital in exchange for a percentage of future credit card sales. Merchant cash advance companies frequently partner with card processing companies to hold back a percentage of sales revenue.
Merchant Cash Advance Costs, Terms, & Qualifications
Merchant cash advances (MCAs) typically range from $5,000 to $500,000, and have factor rates between 1.1x and 1.5x. Repayment is based on a holdback percentage that varies by funder, and can range from 8% to 30%
Merchant cash advances are not tax-deductible, nor the payments that are used to pay back the cash advance provider. Generally, for funding, the borrower can deduct the cost of interest on the funding. However, merchant cash advances do not charge interest; instead of cash advances charge fees.
Merchant cash advances offer benefits to small businesses, including payment schedule – you only pay back your advance when your business makes sales. If you have had strong sales but struggle with little or bad credit, a merchant cash advance may be a good option for your business.
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This post was written by PTPGLOBAL