A Merchant Cash Advance, or MCA (alternatively referred to as a Future Receivables Purchase and Sale Agreement), is a loan made to a business in exchange for a fixed percentage of future credit card and/or overall sales at a discount. The business must repay the advance until a greater amount (purchased amount) is paid in full than the specified amount (purchase price). This process is unique in that it allows for flexible payments (a percentage of credit card or overall sales) that fluctuate in the future in accordance with sales revenue. The "factor rate" is the difference between the large upfront payment and the specified amount (purchase price) or payback amount.
Merchant Cash Advances are not calculated on the basis of principal and interest rates; rather, they are calculated on the basis of a flat discount or factor cost. Unless expressly stated in your merchant cash advance loan agreement, there is no early payment discount for repaying the advance in full early (check your repayment terms in your agreement). An MCA is not a loan secured by daily credit card sales or overall sales, as it is not a short-term loan, but rather a discount on future sales and/or credit card transactions. It is correct that merchant cash advances do not come with a personal guarantee for the business owner, but rather a guarantee of the business owner's performance. This product is a short-term funding solution for businesses that require money quickly to maintain cash flow.
Merchant cash advance loan companies make a cash payout to small businesses upfront in exchange for the business owner selling future transactions at a discount and agreeing to repay a higher amount, called the specified amount. Repayment is based on a fixed percentage of future card sales collected directly from the small business merchant processor or a "lockbox" connected to the merchant processing each time the small business "batches out" credit card transactions until the payback (specified amount) obligation is met. The estimated repayment period is typically between six and eighteen months, depending on the risk of the file, but could be longer due to the repayment being contingent on future credit card transactions and coming directly from the business bank account
Arcarius approval qualifications are easier than traditional business loan financing because of this unique repayment process.
To be eligible for MCAs, a small business owner must have the following:
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