When I first heard of Merchant Cash Advance (MCA), the first thoughts that came to mind were those shady commercials that come on late at night. The ones where the person offers to give anyone $50,000 just for calling the number. I was pleasantly surprised when I actually looked up information on how an MCA works. Unlike those companies, a MCA isn’t a shady late night TV commercial type of industry. It is a growing section of the banking industry that is making a splash on the big ocean of traditional banking. So, for me this is as much of a journey in learning as it is for you, the readers. So buckle in, let’s go!
What is Merchant Cash Advance?
The easiest way to describe Merchant Cash Advance or MCA would be similar to using a credit card to buy goods. But instead of goods, you are buying early access to the cash you project that your business will make. You are using your bank account as credit card for cash. You might think that this sounds very similar to a loan from a bank but there are several major differences. One of the biggest differences is that for an MCA, the merchant doesn’t have to put anything as a collateral. MCAs also have no interest rate and instead, it is a fixed cost. So even if the Advance is big or small, the cost will always be the same and the payment each month will always be the same. This will lead to the question of how Wide Merchant Group or any other MCA company is basically buying the future cash or deposits that the company will receive in exchange for cash now. So, you might start to think, oh, that sounds really complicated. They have to guess what my future deposits are going to be? How do they do that?
The process of evaluating and determining is called underwriting and we will discuss that in a little while. But we want to do our best to give you what you need when you need it. It is a symbiotic relationship and a win-win situation for many merchants and the MCA company. We want the merchant to succeed so our investment on the company and the merchant pays off.
So this still might leave you wondering...How does this work?
You might be looking at the problem like this. The basic math is often very simple. Say your business needs $10,000 to expand. The magical part will be the underwriting, as discussed earlier, is when we assess your file for seasonality, industry type, and pattern of deposits to determine the amount that can be advanced to your business. Once a MCA company, like Wide Merchant Group, has assessed your risk profile, the repayment plan needs to be determined. We take into consideration several factors to make sure that the repayment plan is comfortable and feasible.
What are the benefits of a MCA over a traditional business loan?
After reading about MCA, you might ask yourself “why would I go there when I can just get a loan from a bank?”. I know about banks, I know what they do, I know where they are, I even have a bank account. Why would I go to this unknown website for my financing needs when I can just ask my bank for a loan. The merchant then decides to apply for a loan and that is when they are hit by the truth. Similar to how you may look outside during winter and see the sun and decide, “oh wow! It looks really warm outside. I will go for a jog in my shorts” and once you actually do, you are hit with the nasty, chilly breeze when you open the door. It’s a very unpleasant feeling that many do not like to be hit with. While your bank teller maybe friendly when you want to transfer money or cash in a check, they become a different animal when it comes to loans and giving out their money.
1. MCAs are flexible
Getting a loan from a bank is notoriously difficult. Although they have access to huge amount of funds, they are less willing to let go of it. In an article by business.com, the author states that there are many reasons why it is difficult to get any loans from the bank. First, banks aren’t as flexible in their payments or offers. Federalreserve.gov, the department of government related to dealing with banks and loans states that “non-price terms, generally remained about unchanged, except for a modest net fractions of banks which indicated having eased loan covenants.” What this essentially means is that when your business stumbles upon an unexpected obstacle, banks won’t take the time to change the payments and offers to help the customer. That’s you. On the other hand, Wide Merchant Group agents are more than willing to work with you in order to assure that you are not only able to help the business grow, but also pay back the advance. They will make adjustments if the merchant is facing a new problem and help them figure out the solution together.