How Do I Repay a Merchant Cash Advance?
Repaying a merchant cash advance (MCA) involves adhering to the terms outlined in your agreement. The repayment structure is designed to be flexible and manageable for businesses, as it is directly linked to your future sales. Here’s how the repayment process works:
- Automatic Deductions: The repayment is executed through an automatic deduction known as the “holdback.” Each day or week, a predetermined percentage of your daily or weekly credit and debit card sales is automatically withheld by the lender until the total advance amount, plus fees (calculated through a factor rate), has been fully repaid. This arrangement allows you to repay the advance in a manner that aligns with your business’s cash flow, reducing the pressure during slower sales periods.
- Sales Fluctuation: One of the key benefits of an MCA is its adaptability to your sales fluctuations. Unlike fixed loan repayments that remain constant regardless of your revenue, MCA repayments fluctuate with your sales volume. If your sales increase, you will naturally repay the advance faster. Conversely, during slower sales months, your repayment amounts decrease, providing financial relief.
- No Early Termination: It’s important to note that you cannot “Pay-off” an MCA early in the same way you might pay off a conventional loan to avoid interest costs. The terms of the agreement are set, and the repayment structure must be followed until the full advance and associated fees are paid in full.
- Refinancing Options: Some MCA providers may offer refinancing or restructuring options if you’re facing difficulties with repayments. However, these options typically come with additional fees, so it’s crucial to carefully consider the financial implications before proceeding.
- Explore Your Options: If you find yourself struggling to meet the repayment obligations of your MCA, it’s advisable to reach out to your lender. At Canada Business Loan Experts, our team is available to discuss your specific situation and explore potential options tailor-made for your business needs.
- Pre-Agreement Considerations: Before entering into an MCA agreement, we always recommend thoroughly exploring all your financing options. Understanding the full scope of your obligations under an MCA, as well as alternative funding solutions available, can help you make an informed decision that aligns with your business goals.
In summary, repaying a merchant cash advance involves automatic deductions based on your credit and debit card sales, providing a flexible repayment plan that adjusts with your business’s revenue. Being aware of the terms and conditions of your MCA can help ensure that you manage your cash flow effectively while fulfilling your obligations. If you have any concerns or need assistance, don’t hesitate to contact us—we’re here to help.
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