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Is Merchant Cash Advance Right for You?

Merchant cash advances (or MCAs) are often a hot topic in the commercial lending world. Like with any commercial financing option, however, fully understanding (and preparing for) the cost and terms of a merchant cash advance is the best way to using it to business success.

What are MCAs?

Instead of what we traditionally think of as a loan, MCAs analyze future potential credit card sales and give a cash advance on them. This type of financing option is typically fairly quick to process, although it comes with a higher interest rate than others. Repayments are based on what the business brings in during a day, which means the cash advance can be paid back faster the more sales they make. Usually, businesses use MCAs in the short term, rather than to pay for a long-term asset.

The Benefits of an MCA

While other commercial financing options can have very strict, lengthy approval processes, merchant cash advances tend to be fairly straight forward. MCAs don’t require collateral or high credit scores and won’t usually have a determined repayment length. Since you aren’t placing any of your assets within the agreement, you never have to worry about losing them if you miss a payment. Additionally, the money a business gets from this advance can be used on anything – there are no restrictions on what it can be spent on.

The Drawbacks of an MCA

Compared to other loan options, merchant cash advances can be quite expensive due to their high interest rates. MCAs should not be used for large asset purchases or in any long-term funding plan for a business, although businesses that don’t focus on a repayment plan might find themselves in a seemingly never-ending loop.

Who Should Use a Merchant Cash Advance?

It can be hard to specifically say in a broad sense what business will most benefit from an MCA without knowing exactly what that business needs. However, we can say that businesses needing a quick funding solution, don’t have assets or great credit, and need flexibility in use might find a good fit with a merchant cash advance. As always, we recommend talking with a lender experienced with this type of financing in order to determine whether this (or another) option is best for you!

Obviously, every commercial financing option has its own pros and cons. Even though an MCA might not be the best solution for one business, it could be the perfect choice for another. Get in touch with us today to compare loan types for your business!


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