A Merchant Cash Advance Explained

A Merchant Cash Advance Explained

As a small business owner, you will require capital once in a while to either expand the business or keep operations running. One of the financing options you may want to look at is Merchant Cash Advance (MCA). However, before you opt for this form of alternative financing, first understand what it is to be aware of what you are getting into.

MCA is a form of alternative financing option for small businesses, where, in exchange for the loan, the MCA provider gets a percentage of the business’s income. Initially, MCAs were common for companies whose revenue was from debit and credit card sales like retail shops and restaurants. Today, they are available to a lot of businesses, including those that do not heavily depend on debit and credit card sales.

Advantages of MCAs

Some of the reasons business owners opt for MCAs include:

  • No physical collateral is required. Since these loans are not secured, you do not have to use any assets as collateral. This is beneficial since you do not risk losing assets if you fail to pay the loan. However, the MCA provider will want a personal guarantee in written form that makes you responsible for the loan repayment.
  • Getting these loans is quick since you do not require heavy documentation.
  • Since repayment is based on sales when sales are down, your payment will be too.

Drawbacks of MCAs

Some of the drawbacks of MCAs include:

  • Since payments are based on sales made, the higher the sales, the higher the annual percentage rate (APR) you will pay.
  • MCAs are not subject to federal oversight because they are structured as commercial transactions instead of loans. They are governed by the Uniform Commercial Code in every state.
  • Early paying comes with no advantages, unlike other types of small business loans. You may be penalized for paying early.
  • There is the danger of getting into a debt cycle. If you do not qualify for other types of loans, you may find that you need another advance after paying one loan.

No business can manage without capital. It is the backbone of a business that helps keep the operations running. That is why if you are stuck, you should approach a financing institution for assistance. Here at Atlas Capital Solutions, we are ready to help you keep the business afloat. Get in touch with us today for financial aid.