The Advantages of Using a Merchant Cash Advance

As a business owner, you undoubtedly know the importance of having solid cash flow. You need money to pay suppliers, meeting payroll, maintaining inventory, and growing your operations. The thing is, most businesses may need a little financial assistance from time to time. Loans make sense for some, but they may not be the ideal solution for everyone. One popular option to consider is a merchant cash advance.

Understanding a Merchant Cash Advance

A merchant cash advance (MCA) isn’t actually a loan; it’s an advance. An MCA company purchases a share of your future sales in exchange for near-instant working capital. The MCA company then takes a fixed percentage of your daily or weekly card sales. What this means is that the more you make, the more you pay and vice versa. If you have a bad day (or week), you won’t have to pay as much. The MCA company also charges a fee (factor rate) that they apply to the advance amount. Rates vary from one company to the next but generally fall between 1.1 and 1.5. 

Advantages of Using a Merchant Cash Advance

There are several advantages of an MCA:

Easier Qualifications

Conventional loans have some strict requirements to qualify. You need to have great credit, solid financials, and a minimum of two to three years in business. MCAs don’t have these same requirements. You can still get the money you need even if you have less than perfect credit or you’ve only been operating for a year. 

No Collateral Required

MCAs don’t require you to provide collateral. What this means is that you don’t have to worry about losing business (or personal) assets if you default. 

Fast Funding

It can take several weeks to months to get a decision for a conventional loan. If you are approved, it takes more time to get the funds in your account. With an MCA, you don’t have the same paperwork requirements. As such, the turnaround time is much, much faster. 

Pay Based on Sales

MCA companies don’t have the same fixed monthly payments as conventional loans. Instead, they base your payments on a percentage of your sales. So, if you make more, you pay more (and pay the advance back faster). If your sales aren’t that great, you pay less. 

Find a Solution that Meets Your Needs

Small business loans may be a popular solution, but they’re not the only option available. A merchant cash advance offers an alternative, providing you with faster funding to meet your needs. As with any other type of financing, compare various MCA financing companies to find the best fit for you.