Advantages of a Working Capital Loan Over a Merchant Cash Advance
See How Much You Qualify For
When you’re in the process of acquiring business capital, it’s important to know the differences between major funding types. A merchant cash advance (MCA) and a working capital loan may seem similar in many respects but there are important differences that you should be aware of.
What is a Merchant Cash Advance?
A merchant cash advance is a cash advance that’s repaid in daily, variable amounts, as a percentage of each debit card or credit card transaction until the agreed-upon amount and fees are repaid. Businesses who are approved for an MCA receive a lump sum from the lender and pay the loan back through a percentage of their sales.
Advantages of a Merchant Cash Advance
Business owners may be drawn to a merchant cash advance because of the relative flexibility when compared to large, traditional bank loans. Cash advance institutions aren’t typically concerned with a borrower’s creditworthiness; instead, they typically look to see that you have consistent daily sales rolling in.
As long as you can provide point-of-sale or bank data showing what your cash flow looks like, you’re likely to be approved for a merchant cash advance.
Disadvantages of a Merchant Cash Advance
While a merchant cash advance may be a great fit for some business owners, there are several drawbacks to this type of loan to be aware of.
1. MCA’s Aren’t Legally Considered Business Loans
A large disadvantage of merchant cash advances is that this type of capital is not technically a loan. Rather, it’s legally considered a sale of a percentage of the business owner’s future sales.
This classification means that businesses who acquire funding through an MCA aren’t held to the same standards as financing institutions who legally call their product a loan, nor are they held to state usury laws.Continue reading→