Many small to medium businesses turn to alternative financing options such as merchant cash advance (MCA), which provides a lump sum of money when your business needs capital.
What sets MCA from a business bank loan is that technically, MCA is not a loan.
Merchant cash advance providers are not subject to the state and federal regulations that apply to banks. This is how it works: MCA providers purchase future receivables at a discount. What this means is that you, as a business, grant a discount in exchange for the quick access to cash. In the following months, every time you make a credit card sale, a portion of your sales is remitted to the provided until you have paid off the total amount you borrowed.
Here are the other ways a merchant cash advance is different from a business bank loan:
- You deal with less paperwork
The process of getting a merchant cash advance is less onerous and you can get it much quicker than a typical bank loan. Typically you get the cash in less than a week.
- No collateral
You do not have to put your assets, such as your home, on the line as collateral for a merchant cash advance.
- Higher approval rates
You must show a track record of debit or credit card receivables to be able to get an MCA. Usually, businesses that qualify for a commercial loan also qualify for a merchant cash advance.
- No fixed payback schedule
Your payments will depend on your sales. If business is slow, your repayment slows down as well.
- No use restrictions
You are allowed to use the money you get from an MCA provider any way you choose.
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