How to lower a mca payment

For many years the business world faced the challenge where it had numerous aspiring entrepreneurs but no capital to support their ideas and dreams. Today, we live in times where there is a variety of financing options available to small businesses. One of such option is Merchant Cash Advance (MCA).

A Merchant Cash Advance (MCA) is a type of funding which isn’t a loan. MCA refers to the lump-sum payment received by a business in exchange of future credit/debit card sales receivables. It is one of the most popular methods used by small business owners who deal with credit cards (restaurants and other retail merchants). Cash advance providers supply funds based upon a business’ monthly volume of credit/debit card transactions. When traditional small business financing is unavailable and bank loans are difficult to get due to bad credit then also this funding method can be used for quick cash requirements. The catch is that this is one of the more expensive sources of working capital for a small business.

Let’s understand how it works. The business gets a cash advance from a provider– usually approved and funded in just a day or two – with very little paperwork involved. In turn, it agrees to pay back the advance, plus a fee, by letting the funding provider take a portion of their credit card sales each day until the entire amount has been repaid. For example, a business sells $100,000 of a portion of its future credit card sales for an immediate $80,000 cash payment from a finance company. The finance company then collects its portion (generally 10-25%) from every credit card and/or debit card sale until the entire $100,000 is collected. Though this is a very expensive source of funding since the debt is being paid every day, it doesn’t pinch. If the numbers are calculated wisely, this can prove to be of great benefit for the short-term cash requirements.

If paying back the MCAs has become a challenge, consider what many small businesses are opting for:

  • Many small-business owners with merchant cash advances opt to refinance their debt with online small-business loans because MCAs often have triple-digit annual percentage rates. Once the lender is chosen, the process of refinancing is very similar to getting a small-business loan from scratch. The lender will finance on the basis of the creditworthiness of a business and its ability to repay the new loan. On approval, the lender will use the term loan to pay off outstanding MCA balance.
  • Consolidating your MCAs with a Factoring Company can often lower your overall rate and provide you with a lower and single monthly payment.
  • Focus on lowering the retrieval rate (instead of the factor rate). By lowering the retrieval rate, a company will reduce the amount of money it’s paying monthly, extend the payback period, and lower the effective APR (Annual Percentage Rate). Ideally, the expected payback period should be 18 months.
  • Businesses that receive payments via Square or PayPal may be able to get a less expensive MCA.
  • Use the cash advance to generate new income streams. Otherwise, the business will create bigger problems than solving it.

Bottom line is if the business is confident of generating enough cash, and with the right volume of increased sales, this financial tool can make good sense. Make diligent and calculated use of this source (MCA) to derive maximum benefit.

Get funded using MCA today! Call 866-598-4295 or use the fast, safe & secure online-funding application.

No votes yet.
Please wait...

Back to Top