Financial Advice Apr 01, 2022

Pros and Cons to a Merchant Cash Advance

If you’re running a small business and you need a boost of capital, you may be looking for alternative lending options. As traditional banks become stricter with how they lend, many small businesses have turned to private lending for the financing they need.

Like with all things in life, MCAs have advantages and disadvantages that should be considered before you commit to using this business loan.

Understanding the Benefits of MCAs

There are many benefits from financing through an MCA. First of all, getting an infusion of cash can happen very quickly. In many cases, merchant cash advances require no credit approval and can come in in less than a week or even in a few minutes. This makes it great when you need to take quick advantage of a sale, when you are moving in on a deal quickly and suddenly require funds or if your business needs an emergency loan.

You do not need to have outstanding credit to qualify for an MCA. Those who have limited credit history can still possibly meet a lender’s requirements. On top of that, it’s also easy to get this business loan. Amongst other specifically outlined pieces of information that will be unique to a lender, all you need is to submit an application, a photo of your government-issued ID, and a few months of bank statements that reflect the state of your business.

To round out the benefits of getting a cash infusion through a merchant cash advance, you don’t need to put any collateral up when seeking this loan. Meaning there is no upfront collateral required to get funded. Instead, a MCA lender is looking for is evidence of strong sales numbers and to see if your future sales numbers will be steady as well.

Considering the Cons

One reason why an MCA may not be right for your business is also one of its benefits. These cash infusions are short-term. You may have anywhere from 3 to 15 months to pay off your balance. Coupled with a high-interest rate (ranging from 9% to 50%), if you’re not certain this cash infusion will boost sales and generate enough profit to cover the loan balance, then it may not be a suitable lending option for you.

This leads to another potential issue. Financing, in this case, is based on future sales, which can be a problem if sales don’t reach projected levels. While this risk is a factor in all kinds of loans, it is increased by the short repayment period and the high cost of an MCA.

Finding the Best Financing for You

Consider these pros and cons carefully, and always review the terms and conditions of any lending agreements you receive. A merchant cash advance can be a great financing option for your business under the right circumstances. If you get a high influx of your payments through credit cards, then this option is primed for you to take advantage of. However, in other cases, it may be best to look for different lending options if you need a cash infusion.

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