Merchant Cash Advance (MCA) a Nutshell

Michael Finnigan
Dec 06, 2021

Do you require urgent financing for your small business? Do business-term loans appear scary in terms of interest rates and credibility? Well, don’t lose hope yet. You can fall back on the different options to pump money into your small business and churn out profits. Here’s what you should learn about Merchant Cash Advance or MCA for short.

Understanding Merchant Cash Advance (MCA)

Do you struggle with keeping a good credit score? If so, then you’re not alone because over a third of small businesses in the US struggle to get a financial loan due to poor credit scores or credit “ghosting” activities. Conversely, Merchant Cash Advances are one of the most popular financing options for small businesses. In return for the MCA money, you have to promise a consistent and proportionate chunk of your daily income to the lender.

From your credit card receipts to cash sales, the lender will require a small portion of your daily revenue to help you utilize the financial grant (i.e., MCA). It’s flexible and most suitable for small businesses that face irregular revenue generation patterns.

Term Loan vs. MCA

MCAs are far from the ordinary term loans you’ve encountered so far. A term loan requires monthly or annual payments based on irregular and unfixed interest values. This could double, triple, and even quadruple the amount you took originally, depending on how long you take to repay it! However, MCAs allow you to pay back the monthly or annual remittances based on your irregular income. Hence, MCAs are more flexible. More so, the remittance you have to pay to the lender after taking on an MCA is based on credit and debit sales.

Benefits of Taking up MCA

  • Flexibility to use cash advance funds as per your choice
  • Don’t require high credit scores
  • Consistent remittances

Pitfalls of Taking up MCA

  • Not for long term growth due to shorter terms
  • It might be more costly than other alternatives
  • Remittance readjustment becomes vital due to irregular revenue fluctuations

What’s the Process of MCA?

Since the loan isn’t similar to a small-business term loan, the qualification, obligation criterion, and several other factors are also non-identical. First and foremost, the eligibility of business cash advances (i.e., MCAs) depends on your ability to pay the agreed allowances rather than the credit score.

The remittance rate remains unchanged, and because the process is so easy, the amount is debited from your business account automatically. The deduction occurs based on credit and debit sales every month as per the agreed percentage. Moreover, if the revenue fluctuations are too high, you can request an adjustment for your remittance rate.

Merchant Cash Advance in a Nutshell

In a nutshell, MCAs give you the freedom of operating a small business while using cash loans that aren’t the same as term loans. The process might sound complicated at first, but in reality, it’s entirely different from small or large business loans. Even though the rate of remittances remains fixed, you can request your lender to readjust it if you’re struggling due to irregular sales revenue.

Do keep in mind that Merchant Cash Advances factor rates are risk-based. That is, the lender will decide the per month remittance rate depending upon how risky it is to invest funds in your small business. At the same time, you should feel comfortable with the flexibility of MCAs. After all, this business financing option is just as legal as others.