If you need fast business loans, you may be thinking about applying for a merchant cash advance. A merchant cash advance, or MCA, for short, is not a loan at all.
Instead, a Merchant Cash Advance is an advance of money you take out on your future credit card sales to funding your business. You can get an MCA for $50,000, for example, and then you will repay a “holdback” of 10% of all of your sales until you repay this amount and any fees or other charges leveraged on the funds received.
But while MCAs can be a useful tool for businesses, they’re not always the best option. So in this guide, we’ll discuss the pros and cons in detail, and help you decide if a merchant cash advance is a good choice for small business funding.
The Pros Of Merchant Cash Advances
MCAs have a number of benefits that make them a good option if you are in the need of working capital or fast funding for your business.
- Easy to qualify with fast approval – Your credit score doesn’t matter with MCAs, for the most part, and you can be approved within 24-48 hours if you qualify, so you can get your cash fast.
- Flexible repayment – Your payments are based on your daily credit card sales, so when you sell more, you pay more. When you sell less, you don’t have to pay as much. This makes repayment more flexible.
- No collateral – Since a Merchant Cash Advance is not a loan, it doesn’t require any personal or business collateral, which reduces your risk when borrowing money. Even if you are unable to repay for some reason, your assets are not at risk
The Cons Of Merchant Cash Advances
MCAs certainly have some great benefits, but also have a few drawbacks.
- High fees – You will typically pay much more in fees with a Merchant Cash Advance than you would with a traditional small business loan, as MCAs can be quite risky for lenders. Keep this in mind when applying, and avoid taking out more cash than you need.
- May restrict cash flow – If your holdback is very high, repaying the MCA may take up a significant portion of your credit card sales, which can cause issues with cash flow in your business.
- Requires credit card sales – If you run a business like a food truck where you mostly accept cash, you may not be able to get a merchant cash advance, since they typically can only function if a business has a substantial portion of credit/debit card sales.
Know The Benefits & Drawbacks Of MCAs – And Make The Right Choice!
Now that you know both the pros and cons of merchant cash advances, you can be certain that you make the right choice when applying for small business funding. Consider your options carefully, and you’ll be able to determine if an MCA is right for your unique needs and if you still have some doubts feel free to contact us let our professional advisors at Progressive Business Capital to offer you the correct financial option for your business funding needs.