Understanding Business Cash Advance and Merchant Cash Advance.
As we celebrate 20 years of service, Liberty Capital Group is more committed than ever to helping businesses achieve their financial goals. We continue to innovate and expand our product offerings to meet the evolving needs of our clients. With a focus on excellence, integrity, and customer satisfaction, we look forward to many more years of success and partnership with the businesses we serve.
Liberty Capital Group offers a variety of “business loans” in sense of what most business owners typically generalize when it comes to business capital, business funding or business borrowing in general.
However, there are many types of business loans. Some are technically not supposed to be called a loan, like merchant cash advance, sales purchase agreement, or future receivable sales.
Sometimes technicality matters, so our goal is to educate you those uninformed business owners so they can avoid getting tricked, misled or lied to, so a transaction can consummate at the borrower’s peril at a future undetermined time and unknown consequences. This the cost of working with the wrong broker.
Here is a comprehensive guide to help you understand the different types of loans compare what merchant cash advance is.
What is Merchant Cash Advance?
A Merchant Cash Advance (MCA) is a financing option for small businesses that involves an advance on future revenue sales. Unlike traditional loans, MCAs are repaid through a fixed daily or weekly amount via ACH (Automated Clearing House) payments based on an agreement. In the old days, you must have credit card sales. But now, you don’t need to accept credit card sales to be able to get funding on merchant cash advance.
This type of business funding operates as a future sales or receivables purchase agreement. In this arrangement, the lender provides an advance based on a percentage of the business’s future annual or monthly gross sales, typically ranging from 50% to 150% of the business’s average monthly deposits or sales.
For example, a lender might business cash advance $50,000 to a merchant, who agrees to repay approximately $60,000 over a specified period of 9 months, or 190 business days (Monday to Friday), with fixed daily payments of $315.78.
How MCAs Work
- Advance Amount: The lender provides a lump sum based on projected future sales.
- Repayment: Fixed daily or weekly payments are automatically deducted from the business’s bank account.
- Term: Repayment terms are usually short, ranging from a few months to few years.
- Unsecured: Typically, don’t attach with any form of physical collateral.
- Rate Factor: Instead of an interest rate, MCAs use a factor rate to determine the total repayment amount. This is a multiplier (e.g., 1.2 or 1.5) applied to the advance.
Pros of Merchant Cash Advances
- Quick Access to Capital:
- MCAs can provide funds rapidly, often within a few days, which is beneficial for businesses needing urgent cash flow.
- Flexible Use of Funds:
- There are generally no restrictions on how the advance can be used, allowing business owners to address various financial needs.
- No Collateral Required:
- MCAs are unsecured, meaning business owners do not need to put up collateral, which reduces the risk of losing personal or business assets.
- Approval with Lower Credit Scores:
- MCAs are often available to businesses with poor credit, making them accessible to those who might not qualify for traditional loans.
- Predictable Payments:
- The fixed daily or weekly payments provide predictability in managing cash flow, unlike traditional MCAs that take a percentage of daily sales.
Cons of Merchant Cash Advances
- High Cost:
- The factor rates and fees associated with MCAs can result in a much higher cost compared to traditional loans, sometimes equivalent to an annual percentage rate (APR) in the triple digits.
- Daily/Weekly Payments:
- Fixed daily or weekly payments can strain cash flow, especially for businesses with inconsistent revenue or seasonal fluctuations.
- Potential for Debt Cycle:
- Businesses may fall into a cycle of dependency on MCAs, especially if they are unable to secure other forms of financing due to poor credit. This can lead to multiple advances and increasing debt.
- Aggressive Sales Tactics:
- Some brokers push businesses into multiple MCAs simultaneously, leading to overwhelming debt obligations that can be difficult to manage. This often happens when businesses are desperate and accept terms without fully understanding the consequences.
- No Improvement in Credit Score:
- Payments on MCAs do not typically contribute to improving the business’s credit score, which limits future borrowing opportunities from traditional lenders
Types of Business Term Loans
Short-Term Business Loans:
- Seasonal Mismatches: Businesses with seasonal revenue may struggle with fixed payment schedules that do not align with their cash flow cycles, causing financial strain.
- Broker Misrepresentation: Unlicensed or unverified brokers may make unrealistic promises to secure commissions, leading businesses into unfavorable agreements.
- Lack of Exit Options: Consolidating MCAs is often challenging, leaving businesses with few options to manage or restructure their debt.
While Merchant Cash Advances can provide quick and accessible funding, they come with significant risks and costs if you fall prey from working with the wrong loan broker.
Business owners should carefully consider their cash flow, the total repayment amount, and alternative financing options before committing to an MCA along with who they’re working with. Understanding both the benefits and potential pitfalls is crucial to making an informed decision. If they offer you one loan or two loans at the same time, called “STACKING” you are now endangering your business so be careful. Having multiple draws from your bank account will not help if sales aren’t increasing commensurate with your sales cash outflow.
Unlike true business term loan, a business cash advance is not a loan, it’s a purchase of future sales, or receivables.
Business Cash Advance:
- Advance Funding Amount: $2,500 to $250,000
- Term: Typically, up to 30 months
- Factor Rate: Starts at around 1.1
- Features: Quick funding (as little as 24 hours), flexible repayment options (daily, weekly, or monthly), and minimal paperwork.
- Credit: 600+
Long-Term Business Loans:
- Amount: Up to $5,000,000 per location based on the need
- Term: 2 to 15 years
- Interest Rate: Lower rates due to longer repayment periods and often requiring collateral and typically for well bankable clients.
- Features: Lower monthly payments, potential for large funding amounts, and use for major expenses like expansions, equipment purchases, or large inventory.
- Credit: 680+
Unsecured Business Loans: Local, National or private banks are lenders.
- Amount: Up to $5,000,000
- Term: Varies from 3 to 36 months
- Interest Rate: Generally higher than secured loans due to the lack of collateral.
- Features: No need for collateral, faster approval process, and funding can be used for a variety of business needs.
- Credit: 700+
- Amount: Varies based on collateral value and LTV
- Term: Varies up to 20 years
- Interest Rate: Lower due to collateral security
- Features: Requires collateral such as property or business assets, lower interest rates, and larger loan amounts available.
- Commercial building, apartments, condos and other commercial properties falls into this. We have SBA 504, Investors, and private banks and lenders who will fund your commercial loan and bridge loans.
- Credit: Depending on loan types it can go as low as 650.
Equipment Financing and Leasing:
- Amount: Based on equipment value
- Term: Matches the useful life of the equipment
- Interest Rate: Competitive rates
- Features: Specifically, for purchasing or leasing business equipment, preserving cash flow, and potential tax benefits.
- Credit: 600+ can be structured due to that fact that this is secured by asset, plus can structure to include additional collateral, down payment or security deposits to structure approval.
What are the Requirements for MERCHANT CASH ADVANCE?
- Approved Industry
- Revenue: Demonstrated consistent gross monthly revenue
- Time in Business: Typically, at least 1+ years, but varies by lenders will go as low as 6 months.
- Credit Score: 550
- Documentation: Bank statements, bank verification and application. Proof of owners and time in business.
Funding Rates and Features
- Fast Funding: Many loans can be funded within 24 hours to a week.
- Flexible Terms: Payment plans are tailored to the business’s cash flow needs.
- No Pearly Payoff Penalties: some discount for early payoff.
- Customizable Products: Merchant cash advance can be structured to fit specific budget or payment structure, whether daily, weekly or extending time to accommodate client’s budget.
How Liberty Capital Group's "Waterfall" Funding Works
When you apply with Liberty Capital Group, your application is assessed to match you with the best possible loan options, starting from the top-tier loans down to those you qualify for. Here’s how the process works:
- Bank Loan Assessment: If you qualify for a bank loan, your application is submitted for this option first. If approved, you receive the bank loan.
- Next Best Loan: If the bank loan application is declined, your profile is then evaluated for the next best available loan. For instance, if you applied for a line of credit but are turned down, you might be offered a term loan instead.
- Merchant Cash Advance: Should you not qualify for a line of credit or a term loan, the next option would be a merchant cash advance. This ensures that you have access to some form of funding even if higher-tier options are not available.
- No Obligation: You are not obligated to accept any of the offers presented to you. The goal is to provide you with an approval option that you can consider for your business needs.
- High Approval Chances: If Liberty Capital Group is unable to approve you, it is likely that other lenders may also find it challenging to provide you with a loan.
This waterfall approach ensures that you are given every possible opportunity to secure funding based on your business profile and current financial situation.
Benefits of working with Liberty Capital on Business Cash Advance.
Liberty Capital offers a practical solution for small business owners looking to manage costs, access merchant cash advance from various funding sources, and maintain accessibility from a trusted business loan broker.
Business cash advance can be a complicated process, so you must not do it alone. Working with an business loan broker who knows how to package the best approval will only help get you the right financing.
While loans provides advantages like hedging against inflation and preserving cash flow, it is essential to weigh these benefits against the potential long-term costs and lack of asset ownership.
By understanding the full range of financing options based on your company, personal profiles, and financial standing, you can make informed decisions, save time without having to bank hop not knowing the lender you applied at places all does A Credit, but you are a C credit? How would you know? Let the expert do the work for you so you can go back doing what you’re good at, running your business.
Business Cash Advance is not for everybody. It’s not cheap source of capital. For some it’s a last-resort funding. Higher default of rate, and higher rate of fraudulent transactions cause the rate to remain high.
We are on your side, your best support for your business’s growth and financial health. Contact Liberty Capital today to explore the best business term loans for your business so you can expand and grow with a peace of mind.
Don’t fall for some fly-by-night broker who promises you line of credit when in actuality, you’re signing up for short-term business cash advance that puts you in a whole from day one. Let us help you get out of that program asap.
How To Apply!
Liberty Capital is committed to helping small business owners acquire the heavy equipment they need to thrive. So, we make it simple for you to apply using our Simple Application
Join the thousands of businesses that have trusted Liberty Capital Group with their financing needs. Let us help you achieve your business goals and take your business to new heights.
What do we need?
To get a free quick no obligation loan offer analysis, we would need the following: but subject to additional info depending on the loan type, amount and your credit profile.
- ONLINE APPLICATION
- Last Years Tax returns
- Current financial statements
- Recent bank statements
We look forward to speaking with you.
Best of luck!