Merchant Cash Advance (MCA)

What is a Merchant Cash Advance?

A Merchant Cash Advance (MCA) is a type of financing that provides a lump sum of cash to a business in exchange for a portion of future sales. Instead of repaying the loan with fixed monthly payments, the lender takes a percentage of the business’s daily credit card sales until the advance, plus any fees, is paid back in full. MCAs are often used by businesses that have difficulty obtaining traditional bank loans or have a short-term need for capital.

Is an MCA the Right Choice for Your Working Capital Needs?

MCAs are generally known as one of the higher-cost financing options for small business owners. Many experts advise using a merchant cash advance as an alternative option when traditional loans or lines of credit are not offered. Merchant cash advance companies are not regulated like traditional lenders, so it’s very important to understand the costs and terms of your MCA agreement.

While known as an expensive source of working capital, an MCA can mean the difference between getting through hard financial times or going out of business. They’re also associated with lower eligibility requirements, a simple application process, and quick funding.

It’s always advisable to consult with your MCA provider very carefully and ask them to explain the details of your agreement. You may wish to get legal advice or consult your own financial advisor to determine if this financing option is right for your business.

MCA Advantages and Disadvantages

Advantages

Lower eligibility requirements
Flexibility: If your sales go down, so do your remittances
No additional fees if repurchase takes longer than initially anticipated
Less paperwork than a traditional bank loan
Applicants are eligible with bad credit
Quick funding decision and turnaround time

Disadvantages

Can be more costly than a conventional loan
Can reduce future cash flow