I guess most if not all of us had a business idea at some point – being able to be the boss and the one who decides what and how will your company do. That sure is a great feeling, and when done right, companies yield quite a profit and can affect the society in the right way. Still, one of the major problems when starting your own business is lack of capital. The way to go for most would be loans – mostly being the bank ones.
There are a few problems with these though: they require a lot of paperwork, good credit score, restrict the use of given money, and the interest rates can change quite a bit.
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That is why some business owners, especially those that are not eligible for the traditional type of loans were in search of another option and luckily there is one. It is called merchant cash advance – a thing that has been quite popular for all the small business in the past few years. It isn’t even a loan it is more of a contract where you give something each day or week, and in return, you receive the upfront cash. Now, this seems pretty lucrative, but let’s see how does exactly MCA work and is it as good as it is presented!
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What Is The MCA
So, it is pretty easy – there are two methods of repaying. Either you give your future sales, or you pay a certain fee from your business credit card each day/week. For some reason, people usually go for the second option probably because it is more stable. When choosing an agency to make an MCA contract, you need to fill in on the info if the same has enough experience, good feedback, customer service as well as what is the deposit process and how simple it is. The thing that makes merchant cash advance so good for most people is the fact that you get money very fast – in a matter of few days, unlike the bank loans which can take months. Still, not everything is so shiny, and MCA has disadvantages as well. Let’s take a look.
The Alternatives To MCA
Before comparing the pros and cons of the merchant cash advance let’s talk a bit about the quite popular online loan methods. Websites such as Delancey Street, offer pretty flexible loans (to about a few hundred thousand $), don’t require a good credit score and give you a standard APR. On top of all that the customer service is 24/7, and you have equal repayments over the given period of 3-6 months which is not the case with the MCA. So, there is an option for every type of business, and you should think your choice wisely.
The Pros And Cons Of Merchant Cash Advance
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Anyways, let’s take a look at what is so good about the MCA:
- First of all, you receive the money almost instantly which is excellent when you are in dire need of the same. This way you can amortize your equipment or finance your marketing campaign before the main season for the same goes away.
- Along with that, you don’t need a good score to be eligible for a merchant cash advance. You just need a regular income on your business credit card, and you will be repaid through it. And the advantage can also be the fact that repayment fees aren’t the same each month, but these depend on how well did you do.
- Also, there aren’t restrictions on how to use your money, so you can use it for whatever you need as long as it is connected to the business. The bank loans usually make strict restrictions, and thus the offer is not nearly as lucrative.
- In the end, you don’t risk losing your house or assets as that is not how merchant cash advance system works.
Although it is pretty good especially for small businesses and in the short term there are few flaws as well:
- The APR can be quite high (up to 350%) especially if you are doing good. That might not be the best motivation, as your rates are determined by how much profit you get each month
- You are not protected by federal regulative, as the merchant cash advance doesn’t fall under the same. You just have to trust and believe in the contract you made.
- When we are talking about a contract, hiring or consulting with a lawyer wouldn’t be bad as these know to be pretty confusing.
- Also, there is an actual threat of you ending up in a debt cycle.
- On top of all this, you don’t get any benefit from repaying the given sum before the deadline. No interest savings or anything alike.
Summary
While it is clear that the merchant cash advance has few traits that you have to wary about, it is still a good choice if you are in need of quick cash and want to get away from all the paperwork and credit score conditions!
