Merchant Cash Advance- Understanding

Small businesses far and wide struggle daily to maintain cash flow. The lack of financing available to small business owners is limited.  The big banks don’t understand small business, and typically the finance amounts are not big enough to wet their appetite. This creates a cycle for the business owner because they utilize personal finance like credit cards and Home Equity Lines of Credit and in return overextend themselves on a personal level and ruin their credit.
The other obstacle for the new business owner is lack of time in business. Many of the better financing options require 2 years in business. Yet again this creates a struggle for the new entrepreneur because new businesses are in need of cash flow and yet the circle begins with using personal credit and the slide of the credit score.
There is an action plan that small business owners can take on along with a financing option that will possibly cure an immediate need. But before I get into that a plan of action you must get under way is building your business credit.  This is the most misunderstood option that business owners fail to work on.  As an accountant and Finance Professional the one thing that we instill into our customers and include in our Accounting & Business Services is building business credit. IRS, and other financial institutions look at your business as its own entity.  Having established business credit will allow the business owner to obtain low cost financing, corporate cards, fleet cards, lines of credit and more all based solely on the business credit. I alway like to put it this way… Microsoft wants to borrow money, do you think Bill Gates signs for it?  The other benefit is the separation of personal finances and credit so it can be more readily used for personal items.
Now if you are in dire straits for business cash, you have a tax bill, or you need to cover an emergency bill or you can buy product at a large discount there is a program called Merchant Cash Advance. Merchant cash advance (MCA) is not technically a loan; it gives you an upfront sum of cash in exchange for a slice of your future sales, such as credit card / debit card sales. Or, Automated Clearing House (ACH) advance, which uses a small business’s bank account deposits and bank statement cash-flow to determine funding and repayment. Money is repaid on a daily or weekly fixed schedule. It’s a good source of short-term (12 months or less) financing.
Be warned, MCA’s are expensive, and depending on the business type, you credit history, and your business checking account activity you can get an advance with a factor rate of 1.4-1.5, This means you would be paying back 40-50% of the borrowed amount as a return to the lender. So you must be smart and analyse your situation. If it is an emergency bill or some other problem that needs to be handled immediately MCA is a fast source, funding can happen within 24 hours. If the small business owner is using the money for business growth it must make sense. For example, buying products at a heavy discount which can be sold at a higher profit margin than the factor rate and the business can realize a profit even after paying the loan off, that makes sense.
I have seen many business owners become trapped in the MCA whirlwind, and even double, triple and get up to 8 positions (MCA Advances) and eventually stop making payments in order  to save their business from folding, and many have shut their doors because they couldn’t afford the payments.  Once you apply for an MCA you will open up the floodgates of other lenders calling you and offering you the world.  If you received your funding already they will offer you additional funding, in what the industry calls stacking. There are lenders who specialize in only 2nd positions and up.  They are not trying to help the business owner, they are trying to make a sale to earn commissions.


For the business owner, stacking becomes very dangerous. Payments are drawn out everyday from the business checking or from the credit card proceeds, and with stacking the daily payment requirement can add up. A couple of slow days or other bill requirements can really put a dent in the business.
The MCA business has some bad actors, and they can be really harsh when you stop making your payments. Because MCA’s are a purchase of future receivables, the business owner can call the lender if your daily sales are down, or you closed because of disaster you can have them stop the withdrawal of payments or even get them lowered.

The secret to using MCA’s is that it is used properly, and that the usage is analyzed to make sure that it makes sense and that the business can handle it.  If you have questions on financing or building business credit please contact Ebizmore at info@ebizmore.com.  Our staff of Accountants and Finance Professionals will guide you so that you can make the right decision for the growth and success of your business. If you are being burdened by MCA’s, we can find a solution for you.

If you want to learn more about financing or you are interested in starting a business in business and commercial finance go to ebizmore.com and registered. Once you register one of our support team members will contact you, get you approved and guide you through the site. Remember with Ebizmore you will Learn More, Do More and Earn More.

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