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Merchant Cash Advance is a mechanism in which the merchant running a business pays a lump sum amount in advance to suppliers via its daily or future credit or debit card transactions. Many times, merchants of small and medium business experience short-term cash crunch. Hence, to reduce liquidity crunch in the business, merchants opt for Merchant Cash Advance in India, popularly known as MCA or Point of Sale (POS) Loans. Although the interest rate is relatively on the higher side but still it is popular among merchants, as its repayment facility is linked with daily sales collections from Point of Sales (POS) machines placed at retail shops, supermarkets and shopping malls.
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Eligibility Criteria for Merchant Cash Advance (MCA)
| Eligibility Criteria | |
| The Applicant | Must have good CIBIL/credit score Should be into a stable business |
| Annual Turnover | As per lender’s criteria Usually, while processing the loan application, the lender decides a fixed percentage of annual turnover, as an eligible loan amount |
| POS Machine | Merchant must have POS machine in shop or store Lenders may ask POS banks statement to ascertain eligibility |
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Features & Benefits of Merchant Cash Advance (MCA)
- The repayment plan is decided based on daily collection at the Point of Sale (POS) machine in the shop. The fixed percentage of the daily collection is transferred to the lender account automatically. Such a percentage is called a ‘Holdback Percentage’
- Even if loan repayment gets faster, the merchant does not get the advantage of the interest cost
- Since the repayment is aligned with the credit at Point of Sales (POS) machine, it is preferred way for merchant and lender both. For the merchant, it gives flexible payment linked to the sales. For the lender, it is transparency linked to POS machine’s bank account
- The repayment is hassle-free and automated, as the amount equivalent to holdback percentage is automatically transferred to the lender’s account, as per agreement between merchant and lender
- No collateral is required to avail the Merchant Cash Advance. Since the lender can easily create the charge on POS machine’s bank credits, there is no additional requirement of security or collateral
- Since the process to disburse MCA amount is very quick, the loan amount is credited to the merchant’s bank account almost immediately
- The application process to avail Merchant Cash Advance is extremely simple and quick. Hence, you don’t have to prepare a bunch of documents and visit the bank multiple times in order to avail the fund.
Also Read: How to get collateral free business loan?
Documents Required to Avail Merchant Cash Advance
| Applicant’s KYC Documents | PAN Card Passport, Aadhaar card, Voter’s ID card, Electricity Bill, Water bill, Driving License |
| Business Address Proof | Ownership agreement or Rent agreement of business premises GST Registration Business License |
| Turnover Proof | GST return of last 1 year Bank statement of the current account & POS machine’s account (last 1 year) |
| Additional Requirement | Details of existing loans and repayment status |
| Business Financial Document | Balance sheet, P&L Account, Income Tax Returns of last 2 years |
Also Know: Mudra Loan Eligibility Documents for New Business
How to Apply for Merchant Cash Advance Online?
Apply for Merchant Cash Advance loan by following below mentioned steps:
Step 1: Visit paisabazaar.com to check and compare from all the business loan options offered by leading financial institutions.
Step 2: Pick the deal that suits your business requirements by just filling the basic details like your name, mobile number, residence, loan amount, email address, annual turnover & profit, etc.
Step 3: After submitting the details, paisabazaar’s customer care professional will contact you to verify the submitted details and to proceed with the discussion on the chosen loan deal.
Step 4: Your business loan application will be sent to respective bank for further verification and then the bank’s representative will further contact you to proceed with loan formalities.
Step 5: After your loan application is approved, within defined working days the approved loan amount shall get disbursed in your mentioned bank account.
Repayment Plans of Merchant Cash Advance
Since Merchant Funding is solely based on the amount received through Point of Sales (POS) machine, the repayment method is also aligned to the credit amount in the POS machine’s bank account. Usually, there are three different options, out which anyone can be chosen based on an agreement between merchant and lender.
| Option-1: Split Withholding Method | Point of Sales (POS) machine’s sales amount is split into two parts: One part is credited to lenders account towards repayment of the loan and the other part is credited to the merchant’s bank account. The entire process is automated and seamless, hence preferred by most merchants and lenders. |
| Option-2: Trust Bank Withholding Method | The entire amount of Point of Sales (POS) is credited to the bank account operated by the lender. The lender deducts pre-agreed amount towards repayment of the MCA loan and transfers balance amount to merchant’s bank account. |
| Option-3: ACH Withholding Method | The amount received at POS machine gets credited directly to lenders’ account. After deducting agreed repayment amount, the balance payment is transferred to the merchant’s account. |
Pros and Cons
| Pros | Cons |
| Instant and quick funding | High interest rate |
| EMIs are not fixed | Expensive small business loans |
| Borrowers with Bad or low CIBIL score can qualify | Temporary solution to meet working capital requirements |
| No collateral required | Funds are deducted on daily basis |
| Borrowed amount does not increase | Interest rate varies from merchant to merchant |
Should I avail Merchant Cash Advance?
You can avail the merchant funding to fulfil your urgent financial commitments. It saves your time to meet short-time cash crunch. Moreover, you can repay as you get the cash flow. There is also no need to arrange the collateral to get MCA. Hence, there is no fixed amount of cash outflow like bank’s EMI. However, the rate of interest is comparatively high. Hence, you would end up paying a high cost for the convenience of availing quick finance. It is recommended to avail the bank loan, as far as possible. In case you cannot arrange it, you can use MCA on a temporary basis.
FAQs
Q. Is a merchant cash advance a loan?
Ans. Yes, merchant cash advance which is also known as Point-of-Sale (POS) loan is a short-term loan used to meet urgent cash requirements against daily or future debit or credit cards transactions.
Q. What happens when you default on a merchant cash advance?
Ans. If a borrower defaults on merchant cash advance, the lender can stop the further release of funds, increase the interest rate or can levy penal charges. Lenders can even report it to the credit bureau that shall result in the decrease of the borrower’s credit score.
Q. How to get out of a merchant cash advance loan?
Ans. To get merchant cash advance or POS loans, applicants can visit the nearest retail store offering this type of loan and negotiate on the interest rate as per the business requirements or desired loan amount.
Q. How can a merchant cash advance facility help SMEs?
Ans. Most of the POS loans or merchant cash advances are collateral-free that helps SMEs to meet their working capital requirements without submitting any security. It also helps startups in starting their business and even supports already existing MSMEs to manage their cash flow.