What is MCA (Merchant Cash Advance)?

It's important to find the cash to support the business in the short term, so that the founders can get closer to their long-term goals. Merchant Cash Advance (MCA) is a financing solution that enables a company to obtain funds quickly without going through the more rigorous loan application and approval process for a small business. What makes the MCA so special? For what type of business is it suitable? What are its advantages and disadvantages? How to optimize your MCA in 2024 ? We take a closer look in this article.

What is the MCA?

Merchant Cash Advance (MCA) is a type of financing reserved for merchants. It allows a business owner to obtain an advance of funds that regularly flow through the business's credit card account. This includes business owners who: 

• accept credit card payments
• that has other payment streams
• who has receivables

The MCA is not a loan, but rather an advance based on a business's future revenues or credit card sales. The lender offering an ARM reviews the merchant's credit card receipts and assesses the amount needed and the amount the merchant is able to repay. 

Unlike other business loans, merchant cash advances do not have standard repayment terms. In fact, the repayment schedule is based on sales. Repayment terms can range from 3 to 18 months. The higher your credit card sales, the faster you will repay the advance.

What is the purpose of the MCA for businesses?

The main feature of the MCA is that repayments are made in conjunction with the debtor's cash receipts. The amount financed is in fact repaid with a fee, using a percentage of future income.

For example, it is common for MCA lenders to deduct a daily (or weekly) percentage - usually around 10% - from debit and credit card sales until the amount is repaid in full. An MCA can also be repaid in the form of fixed withdrawals from a bank account. 

Although obtaining a Merchant Cash Advance is not as rigorous as the loan approval process, there is a contract with stipulations. 

During the MCA repayment period, the merchant must hold back a daily amount from their credit card transactions. Before using the MCA, it is important to analyze your sales and see how sustainable this hold will be during the repayment period.

A small business can then apply for an MCA advance and have that advance deposited into their account fairly quickly. 

The advance can be less than, equal to or much more than your monthly sales. It depends on the amount of financing required and the length of the repayment period. 

This financing solution makes it possible to free up cash quickly with a minimum of constraints . For example, a merchant who is short of cash to deal with water damage can use an MCA and find cash quickly.

The MCA, for whom?

The MCA is particularly suitable for marketplaces and companies specializing in e-commerce. 

This financing solution is also ideal for Digital Native Vertical Brands (DNVB). These are innovative brands born and raised in the digital world and social networks such as Le Slip Français, Jimmy Fairly or Asphalte.

Because the lender knows the debtor's average monthly sales, it can agree on a business loan amount and repayment plan more quickly than other short-term financing solutions. 

It is therefore an excellent solution for companies that do not have valuable assets or that need quick cash for one-time expenses.

What are the advantages of the MCA?

The MCA Advance is a financing alternative that offers many advantages to merchants and businesses collecting money by debit or credit card.

Speed

The biggest benefit of a MCA is getting the money you need for your business quickly . If you have a project or improvement you want to make to your business and you need cash to make it happen, a merchant cash advance can be a way to get the money you need to do it.

When applying for a conventional loan, traditional banks may require a rigorous business plan or financing package. This is not the case when applying for an MCA. The lender may actually be able to access your merchant account statements online, saving you from having to send them by email or mail, and saving you time.

Flexibility

Unlike a loan, you don 't need to put up collateral to support the loan. You also don't have to worry about your credit rating. And while the lender will check your creditworthiness, MCA lenders rely primarily on sales and are therefore more forgiving of businesses with modest or poor credit.

The lender may also offer you more flexible payment options. If you are going through a period of low sales, you may also be able to readjust the daily hold on your transactions.

Repayments based on sales

Your company only pays back the loan when it receives card payments from customers, which means that repayments are tied to sales, allowing you to better manage your cash flow.

Repayments are automatically deducted from the money you receive from customers' card payments. There is less risk of defaulting on your loan and incurring late payment fees.

What are the disadvantages of MCA?

The MCA is an effective way to get cash quickly and pay it back flexibly with your sales. Now let's look at the drawbacks of this financing solution.

Uncertainty about the repayment horizon

The risk here is in overestimating weekly cash receipts or not anticipating their seasonality. Too little cash flow would lead to very low repayments and lengthen the loan repayment period. On the other hand, a company with strong and growing cash flow will repay its loan quickly.

Potentially high fees

Because MCAs are not regulated, the creditor can potentially charge fees and interest that, when added up, would be higher than the interest on a traditional bank loan. 

MCA at Karmen - how to get a loan?

For example, Merchant Cash Advance is a financing arrangement that provides an advance of funds that regularly flow through the company's credit card account.  

With Karmen, French companies benefit from a 100% non-dilutive, digitalized, and fast(in less than 48 hours!) MCA financing solution. 

To find out if you are eligible for our MCA program, it's very simple! Connect your company's financial tools (like Stripe or Gocardless) read-only throughopen banking to our algorithm. 

Our objective is to analyze your company's potential objectively based on present and future revenues. 

If the financed company uses multiple billing tools, Karmen sets a proportional percentage on the primary tool for efficiency. For example, if the company makes 70% of its payments through Stripe and the repayment percentage is set at 10% of sales, then the monthly payment will be 14.28% of Stripe collections.

If you qualify, we will send you an MCA loan offer within 72 hours. There are no hidden fees. If you are satisfied with the offer, you will receive the first transfer within 48 hours. 

Conclusion

Merchant Cash Advance is a simple, fast and flexible non-dilutive financing solution that allows merchants and businesses that collect cash by credit card to obtain short-term liquidity. It is possible to obtain MCA financing through Karmen in less than 72 hours!