MCAs are all about speed. Everything from application to money in your account is lightning fast. Approval can take less than 24 hours, and funds can be in your account in less than 3 days.
This speed comes because alternative lenders aren’t held to the same intensive regulations, allowing them to expedite the underwriting process (decreasing prices for them and hopefully for you, too).
After all, this provides more insight into how much you’ll be paying back each day. This allows startups, young businesses, and those with credit score issues to access small business financing.
However, a good credit score coupled with strong sales will score you a lower factor rate. This can substantially lower the total cost of your merchant cash advance.
The payback method associated with an MCA makes your payment schedule fluid. If you’re going through a seasonal lull or a few hard weeks, you can rest easy knowing your MCA only requires minimal payments.
That same flexibility isn’t afforded by other loans, like a short term loan or credit card payment. In those situations, your payments are due regardless of your current sales volume.
An MCA’s speed also empowers you to use it for emergency expenses, like equipment repairs, cash flow gaps, and more
Sometimes, merchant cash providers will require a minimum monthly payment or maximum repayment period, so make sure you check the fine print to avoid unwelcome fees during slow months.
With advances ranging from $5k to $400k, MCAs give you a wide array of spending power. The amount providers will lend to you will be dependent on your sales. More revenue means larger borrowing limits.
MCAs are unsecured, meaning you won’t need to put your house, truck, or personal savings account on the line. However, some MCA providers may require a personal guarantee-so read your contract before signing the dotted line.
You can use your merchant cash advance funds for practically any business expense. They’re best used to finance short-term operating costs (like restocking inventory or making payroll). But, that’s not to say you can adapt them to other uses cases, too.
Merchant cash advance cons
Not all merchant cash providers pull your credit score or report your payments to credit bureaus. This means your MCA won’t help build your credit score, allowing you to qualify for bigger, better loans down the road. Relying on MCAs and other more expensive financing options can be costly long-term, so you must find other ways to build your business credit score meaningfully.
Many loans require to pay back your loan and interest in a certain period. The faster you pay back the loan, the less you pay in interest. However, merchant cash advances use a factor rate to establish a fixed amount you must back. This means that you’ll pay the same amount for your MCA, regardless of how quickly you pay it off.
The constant variance in MCA costs makes it difficult to budget week-to-week and month-to-month. Normally, when your sales go up, you’ll have additional revenue to invest in other parts of the business. However, with an MCA, more sales lead to more correlated expenses-which can be a challenge to plan for in your budget.
MCAs are accessible by businesses of all shapes and sizes in a variety of industries. However, they can be expensive for companies with very poor credit scores and weak financials.
No form of business financing is perfect, which is why you must weigh all the pros and cons. A merchant cash advance is a robust capital tool for your business, but you’ll need to learn how to use it-and use it responsibly when you do.