The smart way to take a merchant cash advance

 October 5, 2021

By  BC Editorial Team

The cash flow in a business is vital and important for it to keep running and to be able to fulfill day-to-day tasks. But what happens when your business doesn’t receive enough cash flow? One of the best alternatives is to request a merchant cash advance that you can later pay with each credit card sale you make. If you want to know about this kind of service you can click here.

What is a merchant cash advance?

A merchant cash advance (MCA) is a credit in money obtained from the amount of your credit card. It is instant money that you can get quickly and safely at ATMs, cashiers in financial services centers, and even on the web.

In general, the maximum value of your advance may depend on the available space on your credit card because the money will go immediately into your account. You will have to pay it through your credit card.

When you request an advance, you will see the value of the interest and commission reflected in your following account statement. Still, it will be automatically discounted with each sale you make.

Pros and cons of an MCA:

Although the cash advance offered by credit cards is an excellent tool and way, as in everything related to finances, the most important thing is to know when to go to it and when not to.

Benefits of obtaining it 

  • You will have money easily available in your bank account or cash if you go to withdraw it from your card directly from an electronic teller machine.
  • You will have the power to decide how many installments to defer payment. However, some banks assign the quota automatically.

Cons of getting one

Although this type of credit looks like an excellent alternative for small-business owners, you have to be alert and consider how this can affect your economy.

Some possible cons are:

  • It will cost you more than using a credit card directly.
  • It can affect your credit history because it shows that you do not have liquidity and that you are over-indebted.
  • Using credit cards in this way does not apply to accumulate miles or points.

The smartest way to use a credit card advance is to do it when it is exclusively necessary. ​​When the money is withdrawn at the physical branch, people can ask for the number of installments they want to pay their debt at, and it can be from one to 36. While when they go to the ATM, the payment is automatically divided into 18 months. It all depends on the financial institution.

However, depending on the interest that the bank charges, it is best to use these advances only for high amounts. If it is a short amount, it is better to turn to a friend or relative to request this loan and, thus, possibly, avoid interest.

Best options to take an MCA:

According to Orbis Research, this type of advance is on the rise and is increasingly common in small businesses. Considering that it is a popular alternative, like any type of credit, it will generate a level of debt. It is essential to be careful when choosing which entity to request the cash advance that your company needs.

To define if an entity is a good option to request a cash advance, consider the following:

  • The requirements. In general, this type of financing does not require greater standards, such as those you would have to have when applying for a loan. Suppose an entity asks you for many requirements. In that case, you will surely be able to find another that makes the process much simpler according to your level of urgency.
  • The interest rate. This is very important for your economy and any money loan. You will probably want to use the option with the lowest rate, so take the time to evaluate and choose the best one.
  • Modality of payment. The most common thing is that the amount you owe is automatically deducted from the sales you make. However, it is possible to get other entities with different forms of payment. This is something that you should also review and choose the one that best suits your needs.

Tips for recognizing you as an excellent candidate to take this way

Although cash advances are an excellent alternative to have fast money, you have to be honest and recognize if you really need it and are a good candidate for it.

Have a stable income stream

A cash advance will help you in times of need. Still, suppose you do not have reasonable financial control or a continuous flow of money. In that case, it will be difficult for you to pay off your debt or be significantly affected by the interest that will be subtracted from your sales and affect your profitability.

You must have a good level of annual sales made with a credit card

A bank’s types of financing are different and could range from $ 5000 to much more. But this is something that will depend on the percentage of daily sales that you receive with a credit card. The more sales you make with this medium, the bank may offer you a higher amount. This is because, in this way, they evaluate your ability to pay.

Try to have a good credit score

For this type of financing, banks are usually very flexible. However, it is something that will influence the bank’s decision anyway. However, even if you have a low score but a high level of sales using credit cards, you will likely be granted the advance.

If this financing option catches your attention and you are interested in obtaining it, evaluate very well if it is just what you need and if you qualify to receive it. Finally, if you decide to get a cash advance, you will be able to get the most out of it with good financial planning and clear objectives.

BC Editorial Team


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