The Advantages of a Merchant Cash Advance
Cash flow is the most important financial resource for businesses that are small or mid-sized. Cash on hand is the ability to pay for utilities, new inventory orders, seasonal labor, or supplier invoices. Without cash, a business cannot grow. Small businesses often are hit harder by economic instability and recessions, causing a drastic shift in credit approval potential and resource availability. When this happens, a merchant cash advance becomes a solution.
What Is an MCA?
Entrepreneurs and small business owners that lack the collateral or credit rating needed to secure a commercial bank loan may rely on an MCA as an alternative funding source. Though it can provide a lump sum of assistance to a business owner, the transaction itself is not considered a loan. The merchant cash provider evaluates the credit and debit card sales of a business and purchases a significant portion of expected future sales at a discount. The MCA provider is granted the right to take a portion of the credit or debt sales conducted each month to pay back the lump sum that was funded to the company.
What Are the Benefits of Using This Alternative?
There are several advantages to using an MCA to give a business a cash boost. Some of these include:
- A high approval rate: Many commercial lenders have extremely specific applicant criteria for a loan, and the tough credit requirements often make it harder for businesses to be approved for a loan. A merchant cash advance operates on completely different eligibility standards, making the approval rate much higher.
- Acceptance of bad credit: No credit history and bad credit can make it impossible to receive traditional commercial loans. A key advantage of the MCA is that creditworthiness isn’t a determining factor for approval. Bad credit, such as a score lower than 500, can still be approved for the funds.
- Simple applications: Rather than filling out a stack of paperwork and providing dozens of documents to a commercial lender, an MCA has a simple application process. The funds don’t take weeks to be distributed either. It is possible to receive them the same week the application is approved.
- Simple payback measures: Traditional loans have a fixed payment plan and amount, but an MCA is structured according to your sales. A percentage is collected each month based on total revenue, allowing a company to make payments that won’t jeopardize their bank account when business is slow.
A merchant cash advance is an advantageous lending option over traditional commercial loans.