Merchant cash advance also referred to as MCA is a financing tool that provides small businesses with an alternative financial window. Technically a merchant cash advance does not fall under the category of a “loan” but it is considered as one since it gives a sum of cash to the borrower and is needed to be returned over a specified period.
What is a Merchant cash advance?
A Merchant cash advance can be defined as a business financing help that funds the small businesses to cope with their financial needs.
The advance is paid in cash whereas the borrower pays it back through a card. In banking terms, an MCA is simply a lump sum amount that a small business or party takes from another to return over some time.
A good example of a Merchant cash advance to help you understand it better would be, a restaurant borrowing an amount of $9000 from a party and deciding to pay back $11000 from the revenue generated from it over some time.
Why do businesses use Merchant cash advance loans?
A merchant cash advance loan is a form of funding that is different from conventional small business loans. Businesses prefer it over the other forms of loan as it is easier to get compared to the traditional loan types offered by banks.
Businesses prefer the MCA loan as it helps regulate their cash flow quickly. There is no minimum credit score required to receive the merchant cash advance loan which makes it even more attractive for business owners.
Advantages of getting an MCA Loan:
Businesses prefer the Merchant cash advance loans for its numerous benefits over conventional loans. Let’s talk about the advantages a merchant cash advance provides the borrower with-
- Getting a lump sum amount in hands:
As the name suggests, the Merchant cash advance loan provides the borrower with a lump sum amount in hand. The loan aims to instantly regulate the cash flow of a business and help it generate better revenue.
Once you’ve applied for the MCA loan, you will probably receive the whole amount in your account within a week. Improving the cash flow of your company is crucial and sometimes having to wait for a loan can slow down the overall productivity of your business. With the instant availability of funds through an MCA loan, you can ensure the cash flow of your business is regulated effectively on time.
- No minimum credit limit is required:
One thing that makes the Merchant cash advance loan very attractive to businesses is the absence of credit score criteria. Almost all other types of loans will require you to provide the lender with proof of your credit limit. The only thing that is noticed about your credit history is that you repay your credits every month regularly.
This ensures the lender that you’re going to repay the loan on time. And your chances of getting the Merchant cash advance loan go up higher.
- No set amount to pay back monthly:
There’s a reason why the Merchant cash advance loan is not considered a loan. The borrower gets money in return for a specific number of credit sales of the business. For this very reason, it is often said that the lump sum amount that you’re getting from an MCA loan is the money coming from you, selling your future sales in advance.
- No restrictions to use the borrowed money:
The amount that you get from an MCA loan is entirely yours, once you receive it and you do not have to specify where you’re going to use that money and what for.
Unlike other forms of loan, where you have to specify the purpose of borrowing money and then have to use the amount for that very purpose, you can use the one from the MCA loan for any purpose you want.
- No effect on your credit ranking:
As a business owner, you will need to get loans several times. Many types of loans will track your credit ranking and the score will determine whether or not you are eligible for a particular type of loan. A MCA loan will not affect your credit ranking, this helps businesses to stay relaxed about their credit score for future purposes.
Some FAQs regarding the Merchant cash advance loan:
Here are some FAQs about the MCA loan to help you understand it better-
- Is a merchant cash advance loan legal?
Many small businesses are concerned about the legal value of a merchant cash advance loan. Well to answer this in one word- Yes! An MCA loan is certainly a legal way to fund your business.
- Is a Merchant loan good for your growing business?
The merchant cash advance loan is considered one of the best options for small businesses to enhance their cash flow. If you’re looking for a hassle-free way to improve the cash flow of your business, a MCA loan is the answer to your worries.
- Are our Merchant cash advance agreements and loans both the same thing?
The MCA agreement refers to the same term as the loan, it is an amount of money that you get in return for selling your future sales.
- Can you enjoy multiple cash loans at the same time?
While it is not recommended to get yourself into multiple Merchant cash advance loans at a time, you can get as many as you can pay in the future.
Though Merchant cash advance loans are best for small businesses to achieve a lump sum amount in an instance, (within a week of applying for the loan) it is also not deniable that this is a relatively expensive way to cope with your cash flow requirements.
As the payback includes your future sales and repaying through the generated sales in the future. Businesses looking for a convenient and smooth way to achieve a good loan must consider the MCA loan to improve the cash flow and generate better revenue with its help in the future.