MCA: Is it Right for You?

March 21, 2019by Lilah Olsher0

There are many different types of loans a person can take out, from many different types of lenders. For example, a college student can take a student loan from the government, from a private lender, or from the bank, whereas a new homeowner can take a mortgage out from a whole handful of different providers. Each type of loan and lender has very different payment terms, interest rates, and requirements for eligibility.

Taking out a loan for your business is no different. There are so many different types of business loans, it can be intimidating to know if you’re choosing the right one. In this series, we will talk about the 5 main loans you can take out for your business. Today we will cover one of the most attractive loans taken out by business owners: Merchant Cash Advance.

What Is a Merchant Cash Advance?

A Merchant Cash Advance is technically not considered to be a loan. Essentially a lump sum of cash that’s given immediately over to the lendee, in exchange for a promise of a cut of future daily credit/debit card sales, plus a fee decided upon by the lender.

Who is a Merchant Cash Advance Best For?

Although this is not a necessary criterion, businesses that make the majority of their revenue from credit or debit card sales are the best candidates for this type of loan. Retail stores and restaurants, for example, can expect that many of their customers will pay with credit.

The Benefits of a Merchant Cash Advance

One of the most attractive things about a Merchant Cash Advance is the speed. After a relatively quick application process, where you will need to present documents such as your driver’s license, bank statements, credit score (even low scores are usually accepted), and tax returns, you will immediately reap the benefits of a lump of cash, in hand. Another advantage is that, during your slower months, you will pay less money back to the lender, as they take a percentage of your credit sales each day. If you make less, you pay less. Also, a Merchant Cash Advance does not require collateral, so you do not need to put up your house, car, or equipment in order to get your funds.

The Cons of a Merchant Cash Advance

While it’s always a good thing to make a lot of revenue that month, you will end up paying more back to the cash advance, as they have taken a set percentage of your daily credit/debit card sales. Also, since there is no interest and rather a fixed rate of your daily credit card sales, there is no advantage to paying off your Merchant Cash Advance early. As with a regular loan that accrues interest, there will be no benefit to you if you pay it off earlier rather than over the entire term.

Does a Merchant Cash Advance sound like the right type of loan for you? Get more information here.

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