Is a Merchant Cash Advance Right for You?

How do Merchant Cash Advances Work?

After you receive the money, you can choose to give up a percentage of future sales and repayments start almost immediately. The lender takes a fraction of your credit card sales, either on a daily or weekly basis. Interest is charged in addition to repayments, until the MCA is paid off in full.

Advantages of Merchant Cash Advances

Why do borrowers opt for MCAs?

Fast cash: MCAs are fast and do not require a lot of documentation in order to get approved for funds.

Payments based on sales: If your business is experiencing seasonality or sales are lower for a period of time, your repayments may be too.

No collateral required: No assets are required to receive funding, but instead a personal guarantee makes you liable in case your business cannot repay the borrowed money.

Disadvantages of Merchant Cash Advances

High APR: Merchant Cash Advances are much more expensive than traditional bank loans, which usually have interest rates of 10% or lower. MCAs have effective interest rates that range between 40% and 350%.

Sales determine APR: MCAs are repaid with a percentage of your sales. If sales are down, payments are lower and extend over a longer period of time. In case of higher sales, APR goes up, but the MCA is repaid faster.

MCA Cycle: Merchant Cash Advances are easy and fast to obtain, but the high costs and frequency of payments can cause cash flow problems. By the time you’ve paid off your first one, you’ll likely find yourself needing another MCA shortly after.

Are There Alternatives to MCA’s?

Merchant Cash Advances aren’t the only options for small business owners. Business credit cards and short-term business loans are great options for business owners. To learn more about the many possibilities of small business loans, click here.