Merchant Cash Advance is an innovative lending product built for providing cash to businesses against the revenue they make. It is different from a typical bank loan as it involves providing a lump sum payment to a business/merchant in exchange for an agreed-upon percentage of future credit card and/or debit card sales on Its POS or payment gateway.
Let us understand with a simple example: Ramesh run’s a small business and is in need of working capital to grow his business over the next few months. Ramesh accepts card payments over POS terminals and an online payment gateway. An MCA provider, Golden, provides Ramesh Rs 50,000 at an interest rate. That means Ramesh will have to pay back Rs 50,000 plus interest to Golden. Now, Golden will automatically deduct a percentage of the POS sales as agreed upon in a fixed interval from Ramesh’s account. This will continue until the full amount is repaid i.e. Rs 50,000 + Interest. Higher the POS sales in a period, faster Ramesh pays back Golden.
- Minimum business operational history of 1 year
- POS usage of a minimum of 6 months
- Minimum monthly card transactions starting from Rs. 50 k
- ITR for 2 years if the turnover is > Rs. 10 lakhs
- Through Merchant Cash Advance, MSMEs can avail short-term unsecured loans.
- The Loan amount provided is flexible and dependant on the average number of transactions of the merchant.
- This loan type also provides quick disbursal (<3 days) and revenue-based collections.
- MCA is also less risky for the lenders as the repayment is POS-based and automated.