In the fast-paced world of business, securing quick financing can be a lifeline, especially for those with less-than-perfect credit. Merchant Cash Advances (MCAs) have emerged as a popular option, but they come with their caveats. This post is dedicated to business owners navigating these choppy financial waters, looking for a beacon of hope.

What is an MCA Loan?

A Merchant Cash Advance loan, also known as a Business Cash Advance, isn’t a loan in the traditional sense—it’s an advance on your future sales. This distinction is crucial as it affects how repayments are made and what legal protections you have.

To start, the MCA company looks at the business’s past sales and determines a loan amount and fee as a percentage of the estimated future sales. After approval, the business will receive a lump-sum payment. Loan payments are automatically pulled directly from the business’s bank account until the loan balance, fees, and interest are repaid.

To start, the MCA company looks at the business’s past sales and uses it to estimate how much it “can afford” to determine the loan amount. After approval, the business will receive a lump-sum payment in exchange for a percentage of the estimated future sales. Loan payments are automatically pulled directly from the business’s bank account until the loan balance, fees, and interest are repaid.

Which companies best fit an MCA loan?

Because MCA payments are a percentage of daily sales pulled on a continuous basis, businesses with large numbers of predictable deposits, such as restaurants or retail stores with numerous credit card transactions, are ideal candidates for MCAs.

What are the benefits of MCA business loans?

The primary benefits of MCAs are ease of approval and speed of funding. After completing the minimal paperwork, business owners can often be approved and receive payment within a few days. And because the loan approval looks at past daily deposits, limited or even bad credit history is not usually a deterrent.

What are MCA loans most often used for?

MCAs are typically used for immediate business needs like payroll, inventory purchases, equipment repairs, or capitalizing on time-sensitive business opportunities.

Are MCA loans legal?

Yes, MCAs are legal, but they’re not regulated in the same way as traditional loans, which means less protection for you as a borrower.

Are MCAs bad?

While MCAs are not inherently “bad”, they can be misused or undertaken haphazardly. The key is fully understanding the terms and the impact on the business’s cash flow that reoccurring daily/weekly payments will have. For many users, the constant pulling of funds can have a counterproductive effect on a company already struggling with daily cash flow issues.

What happens if you default on an MCA loan?

Like with all loans, defaulting on an MCA loan can lead to aggressive collection efforts and can be devastating to your business’s cash flow and future credit opportunities.

Options used to get out of MCA loans?

While there are many funding options available to businesses, not many are in the MCA category of ease of approval and speed. A few that might be considered as alternatives to MCAs:

Personal Loans:

pros: lower rates and fees, positive effect on credit rating
cons: slow application/approval process, good credit rating required, limited loan amounts, personally guaranteed

SBA Loans:

pros: low rates, long repayment terms, easier to receive than bank loans
cons: slow application/approval process, may require a personal guarantee

Invoice Factoring:

pros: fast application and funding speed, credit rating is often not considered
cons: higher rates and fees than banks (but often lower than MCAs), negative industry stereotype

>> READ MORE: Everything You Need to Know About Factoring

Can factoring be used to pay off MCA loans?

If you are unfamiliar with the service, Invoice Factoring involves you selling your unpaid invoices to a factoring company. In return, you will receive an immediate payment in the form of an advance on the invoice’s amount. Unlike MCAs, factoring is not a loan, it’s a purchase.

With similar relaxed application requirements and funding speed, Factoring can be a good head-to-head competitor to MCAs. Factoring, however, has lower fees and no strict daily/monthly repayment terms, making it a more cost-effective and less stressful option. Factoring can even be a good way to get out of existing MCA loans by using it to pay them off. For example:

Success Story:

A Connecticut roofing contractor faced a common dilemma: rapid company growth leading to a cash crunch. They turned to MCAs to meet vendor payments but soon found the daily bank account withdrawals overwhelming. After learning about the service and the terms, they switched to factoring with CapitalPlus, which provided them with $500,000 that they used to support their daily cash flow AND pay off the MCAs they had relied on in the past. needed without the daily repayment stress.

Conclusion and Call to Action:

If you’re feeling the weight of MCA debt, know that there are lifelines available. Factoring with CapitalPlus offers a beacon of hope, providing a less stressful and equally quick alternative to MCAs. While factoring is not a one-size-fits-all solution, for those who qualify, it can be the support you need to navigate through financial straits.

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