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Is an MCA or Merchant Cash Advance a Flexible Funding Tool?

Are merchant cash advances a flexible funding option for your business? Many people have been able to take advantage of them. Some of their benefits include the ease of access, the speed of funding, and the upfront capital provided. Is an MCA the right financing choice for your business?

What Is an MCA?

A Merchant Cash Advance or an MCA is a lump sum of cash that is repaid through daily or weekly withdrawals. This can be a pretty invasive form of business financing. These are typically costly, but they have their uses. If you need capital very quickly and will be able to afford the repayment, this is an option. Just read your contract carefully before taking out an MCA.

How Flexible Are Requirements to Secure an MCA?

Merchant Cash Advances are very easy to obtain, and you can get them online. You just have to fill out an application with a few questions. The approval requirements are typically based on your daily debit and credit card sales. So, this financing option is attractive to business owners with low personal or business credit.

What Is the Cost of a Merchant Cash Advance?

MCAs will be expensive. They may market themselves as having a ‘factor rate’ of 1 or 2. This is different than an APR that a bank loan would have. Instead, there could be hidden fees, daily repayments, and a misleading figure on how much you would be owing based on the lump sum of money you received. Some estimates for MCA costs are between 40% and 300% APR.

Can MCA Loans Flexibly Work Alongside Other Financing Tools?

MCAs are flexible in that you can have other forms of financing and still secure an MCA. Take caution if this is an option you are considering. An MCA will hurt your cash flow with frequent repayments to make. If you need a lump sum of money and can afford to make repayments, then an MCA could be a good short-term tool for working capital. If you need steadier financing that will improve your cash flow, an MCA will not be the tool for you. Some business owners will take out a second or third MCA to be able to meet the repayment demands of their first MCA. This is a slippery slope that could lead you to lose control over your business.

Will an MCA Provide You with the Flexibility to Grow Your Business?

You may be able to cover the cost of upgrades in your business with the lump sum of cash, but if you cannot make your repayments and your cash flow takes a hit, you could end up losing control over your business rather than making it grow. If you fall behind and go into a default rate, things are far more expensive. Maybe you can renegotiate the facility but maybe you cannot.

What Is an Alternative Flexible Financing Tool for Your Small Business?

Invoice factoring is an alternative financing method that improves your cash flow. With factoring, you stay in control of your business. Other financing methods work alongside factoring, so if you choose to factor your receivables and have improved cash flow, you can also take out a small business loan or line of credit. Our invoice factoring services can typically work alongside other lenders to complete the financing plan that your business needs to stay nimble and grow.