Small businesses need finance to grow. Usually they need finance to overcome cash flow issues. 10% of businesses in 2023 chose MCAs, showing they’re a strategic financing option.
To get the best bargain, it’s crucial to comprehend the terms and conditions. 71% of business owners who apply for an MCA are granted one, and the market for MCAs was $8 billion five years ago. By 2021, experts project it will grow to $19 billion.
This blog equips you with information that will help you to negotiate a better MCA deal with your lender. Knowing market rates and your numbers helps and lets you secure lower factor rates and repayment terms that fit your budget.
Understanding Your Options for Repayment
Before diving into negotiation, familiarize yourself with the typical MCA repayment structure.
MCAs can be repaid as a percentage of your daily debit and credit card sales, often called a “holdback percentage.” The factor rate multiplies this percentage to determine the total cost of the advance.
For instance, a 1.25 factor rate on a $10,000 advance translates to a $12,500 repayment. The average holdback percentage is 10-20% of daily sales. Factor rates vary based on risk and lender.
You can secure a lower factor rate by showing your business’s strengths and making a solid case. This will reduce the MCA’s cost.
How to Build Your Case for a Favorable MCA Deal
1. Gather Your Business Financials:
- Business Bank Statements: Demonstrate consistent revenue and a healthy cash flow history.
- Business Credit Score: A good credit score signifies responsible financial management, potentially leading to better terms.
2. Highlight Your Business Growth Potential:
- Project Future Sales: Provide realistic projections showcasing your business’s growth trajectory.
- Explain How the MCA Funds Will Be Used: Demonstrate a strategic plan for utilizing the advance to generate additional revenue.
3. Research and Compare Offers:
Don’t settle for the first MCA offer you receive. Compare terms from many lenders to understand the current market scenario and identify potential areas for negotiation.
4. Negotiate with Confidence:
- Be Professional and Courteous: Maintain a respectful tone while advocating for your desired terms.
- Focus on Mutually Beneficial Outcomes: Frame your negotiation to establish a long-term partnership with the lender.
Always Remember Transparency is Key:
Choose a transparent MCA lender who outlines all fees and terms upfront. This fosters trust and allows you to make informed decisions.
Be wary of lenders with hidden fees or complex repayment structures.
Considering Alternative Financing Options for Your Business
Merchant Cash Advances (MCAs) offer quick access to capital, but at a higher cost. You must explore other financing options as they might have lower rates and longer terms.
Business Term Loans
Term loans are a traditional form of business financing. They can offer stability with fixed rates and repayment periods. According to recent statistics:
- The average small business loan amount is around $663,000.
- Interest rates for small business loans range from 2.54% to 7.01%.
- 59% of small businesses are in fair or poor financial condition. This highlights the need for accessible financing options.
Lines of Credit
Lines of credit provide flexible access to funds. They allow businesses to use the credit as needed. They can help with managing cash flow or unexpected expenses.
- Federal Reserve data shows that lines of credit have a 71% approval rate. This is almost 15 points higher than business loans.
- In 2023, 39% of SMEs sought finance valued at £25,000 or more.
Alternative Lenders
The alternative lending market has grown. It offers more options to businesses. They may not qualify for traditional bank loans.
- A survey found that many companies seek new ways to finance. Banks pressure them more due to increasing rules.
- In Canada, only 29% of surveyed people sought funding from a bank. Its interest in alternative loans has increased since 2013.
Conclusion
Negotiate a better MCA deal by approaching your lender and making a compelling case.
You can try getting a lower factor rate, a good repayment terms and financing. This financing fuels business growth.
Remember, thorough research is key. A clear negotiation strategy and focus on transparency are vital. They help you get the best possible merchant cash advance for your business.
If you want other strategic moves to secure a better MCA deal with your lender, join the discussion at MCA Legend subreddit.
It’s one of the top 10 subreddits that focuses only on the MCA industry and its intricacies. So, you can find people who will help you with getting a better MCA deal by outlining rare strategic moves.
FAQs
1. Can I negotiate the repayment terms of an existing MCA?
- While renegotiating existing terms can be more challenging, it’s not impossible. If your business has grown or improved since getting the MCA, it’s worth contacting your lender to discuss potential adjustments.
2. What are some red flags to watch out for when negotiating an MCA?
- Be cautious of lenders who pressure you into a quick decision or offer terms that seem too good to be true. Look for hidden fees. Make sure you understand the repayment structure before signing.
3. What happens if I can’t repay my MCA?
- Defaulting on an MCA can have severe consequences, including hefty penalties and damage to your business credit score. Communicate any difficulties with repayment to your lender as soon as possible to explore potential solutions.
4. Is getting a small business loan or an MCA better?
- The ideal financing option depends on your specific needs. Small business loans often come with lower interest rates but stricter qualification requirements. MCAs offer faster access to capital but have higher costs. Evaluate your business’s financial health and long-term goals to make an informed decision.