Is a Merchant Cash Advance Appropriate for Your Business?
In today’s world, a lot of people are looking for easy ways to get some extra cash to cover their expenses. That’s why they turn to merchant cash advance loans. This type of loan is a great way to get the money you need. Here we will discuss merchant cash advance loans, how they work and whether or not you should get one.
Whether you have a small business or you are just looking to expand your business, merchant cash advances or MCA can be a very beneficial tool for you. Of course, it all depends on what kind of business you have and if this would be a good thing for you. Overall this can be an amazing thing for your business since you don’t have to go through the hassle of applying and getting approved for a traditional loan. MCA allows you to get the needed cash fast and easily, which can come in very handy.
What is a Merchant Cash Advance (MCA)?
A merchant cash advance is a loan that differs from traditional bank loans since it comes straight from a lender. They are short-term loans that companies can use to overcome the gap between their current liquidity needs and anticipated cash flow. Merchant cash advance gives businesses the possibility to get the needed working capital that allows them to meet immediate financial needs and also allows for future liquidity planning.
How Does a Merchant Cash Advance Work?
For you to get the needed merchant cash advance financing, you will need to apply and find a lender first. Since they differ from traditional business loans, once you send your application to the lender, you will have options regarding the repaying of the loan. Most lenders offer you daily, weekly, and monthly repayment plans.
It’s important to know that you are repaying back the loan through your credit card sales. Usually, MCA lenders deduct 10% of your sales. So, the higher your sales are, the faster you will repay the loan back. When it comes to the terms of a loan, they are set by the lender, and they can vary, but typically they are short-term and last between two and six months.
Merchant Cash Advance: Pros and Cons
As mentioned above, merchant cash advances are a great way to get the needed funding for your business fast and easily. With that said, they do have their own benefits and setbacks, so it’s important to familiarize yourself with them before you take an advance.
Pros of Merchant Cash Advances:
- Fast and easy money
- No collateral needed
- Can get with bad or lower credit score
- Easy repayment
Cons of Merchant Cash Advances😐
- Only for businesses that accept card payments
- Not a long-run solution
- Short repayment terms
Since they are very easy and fast to get, a lot of businesses choose them to get the needed financing. Because of that and as well the possibility of getting them without collateral, they have become increasingly popular over the years when the financial situation is tight.
Even though they have good sides, let’s not forget about the downsides as well. As much as they are easy to get, they have very short repayment terms, which can make them difficult to repay for some businesses if they have low sales. Another thing is that they vary from traditional business loans. They have interest rates between 9% to 12%.
Is a Merchant Cash Advance the Right Option for Your Business?
MCA loans are a great thing for businesses that are in need of quick cash. A lot of small businesses have turned to them in the past couple of years, and their popularity has risen. An amazing benefit they bring is that they give you the ability to borrow up to 25,000$ without the need to go through an extensive approval process that traditional loans have.
At the end of the day, MCA can be a beneficial tool for your business, but you need to make sure that you are able to repay it back. Since they work on the principle of repaying it back through sales, you need to be confident and sure that you will have higher sales in the future.
When is it a Good Idea to Get a Merchant Cash Advance?
Although we can’t precisely tell you when it is a good idea to get a merchant cash advance, we can give you some situations where getting an MCA is a good thing. As we already have mentioned throughout the article, a lot of small businesses are taking this type of loan. MCA has been created as a tool to get the needed funding for a short period of time until your cash flow comes. In a situation where you need the money fast until your cash starts flowing in, a merchant cash advance is a great idea for your business. This as well is a great idea for businesses that are working seasonally simply because, during the peak of the season, they can repay the money back.
So, if your business falls in this category or you are sure that your business will expand and grow, then MCA is a good fit for you. On the other hand, if you are not confident in your business, we suggest you look for alternatives that will work better for your business.
Alternatives to Merchant Cash Advance
Many small business owners find MCA a bit risky since it’s a short-term loan where you repay it back with your sales. Here we will give you a rundown of some alternatives you can take to get the cash without taking out a merchant cash advance.
- Invoice financing – This allows small business owners to sell their receivables to alternative lenders for a certain fee. By doing this, they are getting instant money against their invoices issued.
- The business line of credit – The most popular option amongst small business owners. Because of its flexible nature, it allows owners to withdraw money whenever needed and repay it back when they have a surplus flow of cash.
- Short-term business loans – Because they are easy to get and have terms lasting anywhere between 1 to 5 years, it makes them desirable for small business owners. On top of that, they have fixed repayment schedules that are based on APR.
- Equipment loans – As the name already suggests, this type of loan is used to buy equipment, such as machinery, chair, or anything related to it. It’s popular also because that equipment works as collateral in case you halt the loan.
Now that you know other options make sure you do your research to find the most suitable loan for your business and budget.
Like any other business owner, it doesn’t matter if it’s small or big; you want to expand it and make it even more successful. That’s why over the years, MCA loans have been increasingly popular, and they continue to do so even more.
If you didn’t know much about them before, once you read this article, you will find more information that can help you in finding the best solution for your business. At the end of the day, everybody likes to see their business booming and bringing money.