Different Business Capital MCA Funding Payments

Is your business’ cash flow sputtering at just the wrong time for your operational needs? There are many small businesses that experience low points in cash flow and need an infusion into their cash flow to keep things running optimally. One easy way to do this is to apply for a merchant cash advance. This is a great tool for businesses that do a strong business through debit and credit card sales leverage that revenue for immediate cash.

The top feature of a merchant cash advance is the flexibility of the repayment terms. You won’t have to pay back a loan on a certain date each month or quarter, like you do with a traditional loan. Your repayment fluctuates with your debit and credit card sales. So if your card sales take a dip after you take out the advance, then your payments get smaller to compensate. If your card sales stay strong, you pay the advance back faster.

When you take out a merchant cash advance (MCA), you generally will have one of three repayment processes: split withholding, lock box and ACH withholding. No matter which method you choose, you’ll repay your balance over a period of time that generally lasts between 4 and 18 months, depending on the size of the advance and the percentage of your revenues that you agree to have the provider withhold. It is worth noting at this point that an MCA can take a significant chunk of your revenues as repayment; one typical scenario might be an $18,000 advance that costs $20,000 to repay over the course of time, so you’ll definitely want to shop around your MCA to see that your repayment rate makes sense with relative comparison to your need for liquidity.

Split withholding is what most MCA providers and borrowers prefer, because everything happens electronically. This involves the credit card processing company splitting your sales between you and your MCA provider. You agree on the percentage to send your MCA provider before you take the advance. 

The lock box method (also known as bank account withholding) sends your credit and debit card revenue to a new business bank account, where it is then split between you and the MCA provider. This creates a delay of one business day in receiving your credit card funds. Because of that delay and the relative complexity, this is the least popular method among business owners.

The third method is ACH withholding. ACH is an abbreviation for Automatic Clearing House. With this system, the MCA provider receives the information from your credit/debit card processor and deducts an agreed amount through an ACH withdrawal from your bank account.

No matter which method you choose (or your provider offers), a merchant cash advance can provide you with crucial cash at a time when your business needs it the most. The flexible repayment options make it easy for businesses to pay the advance back in a time frame most convenient to their own business cycles.

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