3 Questions
What is a merchant cash advance (MCA)?
An advance based on credit card sales deposited in a business's merchant account
How do MCA providers evaluate risk and credit criteria?
They look at daily credit card receipts
What is holdback in relation to MCAs?
The percentage of daily credit card sales applied to the advance until it is fully repaid
Study Notes
A merchant cash advance (MCA) is not a loan but rather an advance based on the credit card sales deposited in a business's merchant account. MCA providers evaluate risk and credit criteria differently than traditional lenders and look at daily credit card receipts to determine if a business can repay the advance in a timely manner. Repayments can be structured in two ways, either by exchanging a portion of future credit and debit card sales or by remitting fixed daily or weekly debits from a bank account. Fees are determined by the provider's risk assessment and factor rate, which can range from 1.2 to 1.60, and are multiplied by the cash advance to determine the total repayment amount. MCAs are quick, unsecured, and do not require strong credit. Holdback refers to the percentage of daily credit card sales applied to the advance until it is fully repaid. The holdback amount is not the same as the interest rate, which is charged separately by the MCA provider.
How much do you know about Merchant Cash Advances (MCA)? Test your knowledge with our quiz and learn about the benefits and risks of this financial product. Discover the differences between MCAs and traditional loans, how they are repaid, and how fees are calculated. Challenge yourself to understand holdback and factor rates and see if you can differentiate them from interest rates. Whether you're a business owner considering an MCA or just curious about this type of financing, this quiz is for you.
Make Your Own Quizzes and Flashcards
Convert your notes into interactive study material.
Get started for free
