In the world of business funding, merchant cash advances sometimes get a bad rap. Bank loans are held up as the gold standard of business financing, investors are looked at as angels, and even crowdfunding is made to look trendy and easy by many. Don't judge merchant cash advances; they may be more beneficial than you think.
What is a Merchant Cash Advance (MCA)?
Unlike many other business funding sources, MCAs are not loans. Providers purchase a portion of future sales, which they then receive back a little bit at a time until the portion they purchased is repaid, plus fees. In effect, business owners agree to pay a fee to get a lump sum of cash, which they can use right now and pay back over time.
MCAs are unlike loans in several ways. They are less dependent on creditworthiness, instead looking at daily sales to measure the ability to repay the lump sum over time. They are also repaid much faster, which may seem bad but is actually good. Business owners don't want to be in debt long term, so having the MCA repaid within a year can free up businesses to move forward without having any obligations to worry about.
It's a No-Brainer: MCAs Just Make Sense
The interesting thing about MCAs is that although the fees may seem higher initially, they can actually be less than the amount of interest on a business loan, depending on the interest rate of the loan and the repayment terms.
Another way an MCA is unlike a loan is that providers don't limit how it can be spent. Loan officers want to know exactly how their money is being used, and deviation can mean trouble. MCAs give business owners the flexibility to respond to changing conditions.
Banks would like you to believe that MCAs are predatory, that providers take advantage of business owners. In reality, though, MCA providers are more willing to give cash to business owners than most banks are today. For years now it has been extremely difficult to qualify for business loans, but getting a merchant cash advance is fairly easy if you have a successful business with a good track record.
Less Risk, More Benefit
Most bank loans require some sort of collateral - usually the recipient's house or other property of value. Because MCAs are unsecured, your home and other property are never at risk. Payments are deducted automatically as a percentage of daily sales, so you always know how much you will need to pay once you know what the day's sales were like. Tying payments to sales protects the business owner because if you have an off day, less is taken for repayment. It may take a little bit longer to repay the MCA if you have a slow period, but there won't be any penalty for the delay - it's built right into the terms.
So you decide. Should a merchant cash advances get a bad rap? Quikstone Capital Solutions provides these lifelines to businesses every day. Apply now to see how much your business qualifies for.
