A lot of people may not know what a merchant cash advance is or have some misinformed knowledge on what they are making them feel more apprehensive about them. Among the other alternative funding options that exist merchant cash advances haven’t been around for long and despite that fact that merchant cash advances act much like traditional bank funds they have a couple of perks that set them apart and make them look more favorable to merchants looking for alternatives to funding from banks/ credit unions. But for those that are misinformed about what they are here are some facts about them that will let you know see how they stack up to other business financing options.
1. Merchant cash advances are no different from loans: As said above merchant cash advances are not like traditional bank funds even though they have a similar function. With MCAs the lender provides funding to another business by buying future credit card receivables. They take a fixed percentage from your daily sales revenue without the need of paperwork or writing a check so the money is taken out without any action on your part. The best part is that you are not required to have a credit score to be approved and taking out a MCA does not affect your credit score making it a win-win situation.
2. Security is required before you can take out a MCA: MCAs unlike traditional bank funds do not require security or collateral to be approved. Since the repayment process relies on credit card sales a strong sales history greatly increases you chances of getting approved. In addition all that is needed is a a few documents that show proof of ownership of your business like bank statements and other documents that verifies this information would do just fine.
3. You must wait for a long period of time before you get funded: MCAs have the added benefit of being quick when it comes to funding and are less predatory than payday loans. With an MCA a business can get funded in as quick as 2 days and online applications are just as fast requiring no paper work. If you’re a business owner in desperate need of cash a MCA is the best way to go.
4. MCAs are only for businesses that need it immediately: It is true that many small businesses that need funding immediately turn to MCAs which may create the impression that MCAs are only provided to businesses that are desperate for funding but that can’t be any further form the truth. MCAs are open for any business that needs funding without the stringent terms that comes with traditional funding. The fact that they’re more affordable, faster and more flexible than other methods of funding is why they’re becoming more popular with other small businesses.
5. MCAs operate like lending sharks: Merchant cash advances do have the down side of having higher APRs than their bank counterparts which is why some people would unjustly compare it to predatory lending but all of this is drawback is nothing compared to the benefits that comes with taking MCAs. Truth of the matter is the repayment amount is determined by a factor system and you have the option of choosing which repayment method works for you.
6. Traditional Funding is better than MCA: Because bank funding have lower effective interest rates than MCA small businesses would tend to save more money but the problem is that banks have a higher rejection rate when it comes to lending than MCAs and also though some businesses prefer fixed monthly repayment plans the flexibility offered by MCAs despite their higher interest rate actually makes it more affordable and unlike banks merchant cash providers won’t charge you extra fees for missing a payment.
7. MCAs are scams: MCAs are not regulated like other business financing alternatives because they operate on future credit sales and the fees that you pay also varies per company but MCAs mostly operate on ethical practices so that companies names are not tarnished by underhanded actions. The MCA industry under the North American Merchant Advance Association forbids hidden fees, changing the payment rates and other unethical actions to protect their reputation and ensure people continue to borrow from them in the future. The repayment price is fixed and the total fees are are written in detail as a list so businesses can thoroughly understand of all the costs.
8. Banks and MCAs are your only funding options: Though MCAs are designed for businesses with low credit score if your business can’t qualify for a loan because of credit issues and your business declared bankruptcy you can’t get an MCA. There are other funding options that exist too like lines of credit and these types of lenders usually determine your eligibility by streaming through a series of data that’s all about you generated from everything like college grades to social media profiles. The SBA also offers micro financing options for small start-ups with less than perfect credit ratings too.
Ultimately the decision is left to you in terms of what type of funding is best for your business. There many places you can go to get information about alternatives you can turn to if you want to get funding for your business however some of facts can get lost in a sea of misinformation. Fortunately these facts have cleared up some of these misconceptions you may have about MCAs and now that you’re aware you can decide to see if it is right for you and your business.