Merchant Cash Advance – All You Need to Know About MCAs

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Merchant Cash Advance Canada - Smarter Loans

Merchant Cash Advance – All You Need to Know About MCAs

Leveraging the funds built upon credit merchant accounts is one of the many ways in which a business might have access to some cash for capital when needed. The merchant cash advance or MCA is an alternative to the lengthy process in both time and paperwork a business would have when accessing funds via a traditional bank loan. The MCA is also a means in which to bypass the credit requirements that are often very strict.

The MCA is not truly a loan. That is not a bad thing though. The MCA is actually a cash advance that has is bases applied in regards to the number of people using a credit card to pay your business. A small business need only apply to determine if they qualify; once qualified money can be deposited into that account in the matter of days.

Those that provide merchant cash advances go about determining their risk evaluations as well as how they determine the weight of the overall credit criteria. What they do, however, is look at the daily numbers in regard to credit card sales, the sales totals, and then it is able to determine if the business would be able to pay back the amount advanced. The business can then use the future sales transactions as a means to help leverage the capital they are in need of acquiring now rather than waiting for that sale to happen.

The rates charged on a merchant cash advance will have a large impact on a business’s ROI (Return On Investment). This is due to the prohibitively high options of financing the advances rates. To make the most informed decision possible it is critical that every part of the terms being offered are understood completely.


How To Apply

  1. Application – you will be asked to complete a one to two page application. This application will ask for the basic business fundamental information such as the business tax ID number, applicants personal information, and similar such items.
  2. Documentation – You will be asked to provide some general business documentation. This is to help establish proof of business as well as proof that the business has a means of repayment. These documents might include previous months credit card statements, previous months banking statements, proof of citizenship, proof of building lease, or other business papers.
  3. Approval – approval on an MCA can occur in as little as a few hours or a couple of days.


Credit Card Procedures

Upon approval the business may need to switch to a new credit card processing system. This step is often the most tedious and inconvenient of parts to the MCA. However, in order for the MCA to process as it has been outlined the credit cards must be processed by the MCA lender.

What this does mean, though, is that a business has more options available to obtain an MCA from therefore allowing one to search for the best deal. For example, if your current processing system vendor asks for 30% in daily return and a different vendor only requires 15% you can go with the 15% with little issue.


Merchant Cash Advance Finalization

Step One

The cash advance merchant and the business must first agree to the terms being offered. These terms could include the following areas.

  • Advance Amount
  • Payback Amount
  • The Holdback
  • The Specific Advance Term

Step Two

Once the agreement has been agreed upon and put into place the money can then be advanced. This advance will then be deposited into the merchant’s account that the agreement is held. Payback will occur using the credit card sales that are to come.

Step Three

Each day the merchant account lender with without the agreed upon daily percentage from credit transactions received. The merchants availability to due this takes the place of the collateral one typically needs to secure the traditional loan. The taking of this percentage is what is referred to as the “holdback.” this holdback will continue until the advance has been paid off in full.


Percentage Based Repayment

One aspect that we have yet to describe is the percentage payback. The fact that the repayment is on a percentage based scale or method of return the slow season or slow days will be lower daily payments withheld. This keeps the advance repayment in balance with the overall sales of the business. This will ensure that the business can continue to operate as normal without worry of a large monthly payment.


Merchant Based Advance Considerations

Building Credit

If you are seeking a means in which to help build business credit than the MCA might not be the best option. Primarily the reasoning for this is due to the fact that the average MCA does not report to the credit bureaus. This means that the payments would go unnoticed by other my standard lending sources.

Percentages and Fees

The fees charges by an MCA after often much higher than those offered by more conventional lenders. These fees also are known to vary greatly from lender or vendor.


In Conclusion

As one can see there are distinct advantages and disadvantages to the merchant cash advance. As with any money based ventures you will want to make certain that you totally understand every aspect of the endeavor 100%. If there is any section or portion that you are uncertain or unclear be sure to not sign the paperwork until this has been cleared.

At Smarter Loans we’ve taken the time to review and qualify merchant cash advance providers in Canada based on multiple criteria. Quality of products, transparency in fees, customer service, time in business and level of support are just a few of the factors. When you find a business loan provider in Canada using our loan finder, you know you are always dealing with a top reviewed, highly trustworthy provider.

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Smarter Loans Staff

The Smarter Loans Staff is made up of writers, researchers, journalists, business leaders and industry experts who carefully research, analyze and produce Canada's highest quality content when it comes to money matters, on behalf of Smarter Loans. While we cannot possibly name every person involved in the process, we collectively credit them as Smarter Loans Writing Staff. Our work has been featured in the Toronto Star, National Post and many other publications. Today, Smarter Loans is recognized in Canada as the go-to destination for financial education, and was named the "GPS of Fintech Lending" by the Toronto Star in 2019.