MCA -Merchant Cash Advance is the lump sum of money a company offers to a business in exchange for a percentage of their daily credit card income. It technically is not a Funding but a sale of a portion of future debit or credit card sales. MCA Fundings are now also known as small business financing. These Fundings are taken usually by small businesses who do not qualify for a bank Funding. MCA Fundings are also approved very quickly. Sometimes, the amount is deposited in the merchant’s account within twenty-four hours. MCA providers evaluate criterias different than a bank. They look at a business's daily income ad determine if they could pay back in time or not. Within the concept of MCA Fundings there's a term known as a holdback. A holdback amount is the percentage of daily credit card sales applied to your cash advance. It is usually a fixed percentage until the full advance is paid back. This holdback will be paid until the total amount is paid back to the mca provider. The amount of payback daily is not a fixed amount. Suppose, if the sale on a day is low the repayment will be lower as well. On days when it is high, then a merchant would be able to repay the funds quickly. A factor rate is the rate of interest that is supposed to be paid back with the principal amount. There is a difference between the holdback rate and rate of interest, which is often known as the factor rate. A factor rate is often expressed as a decimal figure which shows how much extra you need to pay back. It is simple and easy to calculate. Now, the question is when does a merchant or business need mca Fundings? The answer is when there’s a quick need of cash, and there's no time to apply for bank Fundings or a small startup which did not qualify for a bank Funding.
How does the process of approval take place?
There's a contract or agreement between the borrower and the provider before a mca Funding is approved. This agreement includes factors like the total cash advance, payback amount, holdback rate, and term of the advance. Once, all these formalities are done, the amount is then deposited to the merchant's account in exchange for a future portion of the credit card’s receipt. Then, the agreed percentage is paid back to the provider daily.
How Do You Apply For an MCA Funding?
The approval time depends upon the lenders. It can be approved in hours or may take up to three days and more. Mca Fundings are relatively easy to deal with, and the process is not as complicated as bank Fundings. The application process of MCA Fundings is more straightforward than bank Fundings. You need to go through all the documentation which includes
- an application for funding: You need to apply for the financing first. The application form consists of two-three pages which will ask for your business tax id and other relevant information about your business.
- Providing id proofs and business proofs: After applying for funding, you need to deliver your documents that will verify your identity and business.
- Set up the credit card procedure: The MCA provider may require you to set a new credit card processor. You need to do all the necessary work and finalize the details.
- Get the deposit: Once all these are done, the amount will be deposited in the account.