Is MCA a good option for your business?
Is MCA a good option for your business?
Any kind of business, be it small or a well established (large) business there is always a need for an additional working capital. To pay off workers, invest in new products or inventories, for expanding the business or to merely repay debts, however, deciding on which funding option works best for your company can be a great challenge for business owners.
In this case, doing a cost-benefit analysis by weighing the pros and cons of all the available options is crucial in order to ensure the most favourable possible outcome that not only financially aids your company but also benefits your business in as many ways possible.
The two most common financing options for working capital that come to one’s mind are short-term Business Loans or Merchant Cash Advance. Although they are used for the same purpose but both function differently.
Business Loans vs. Merchant Cash Advances
Short-term business loans operate similarly to a car loan or a mortgage. A lender offers a predetermined amount of capital in return for a fixed payment that is to be paid monthly for a specified time period.
Merchant cash Advance, on the other hand, involves a lump-sum amount of capital in exchange for a share in the business’s daily credit card receipts/sales. There is no fixed due date for repaying the loan, but unlike business loans which have a low-interest rate, the interest for merchant cash advances can be high.
Where business loans provide the owners with a variety of loan options like balloon payment loans and SBA loans, Merchant Cash Advances require no collateral i.e. MCA providers evaluate your business credit sales history to secure the loan. But secured business loans require you to declare any existing asset (house, car, business inventory, etc.) as a guarantee.
In other words, while the business lender looks at the company’s total revenues, the MCA providers are only concerned with the credit card sales of a company. Moreover, business loans have a lengthy application process, which can take up to several days or weeks to process. Whereas, the application for MCA is normally approved on the same day as fewer documents are required.
MCA also gives fast access to capital as opposed to business loans. Business loans additionally require a good credit score (of 700 or higher) and a business credit score of 75 or greater, while MCA has flexible eligibility criterion i.e. even if you have a bad credit score (lower than 500) you are still eligible to apply.
When to opt for MCA?
After weighing the pros and cons, the next step is to decide which option is better suited for your business and why?
If you are looking for a short-term funding solution to launch a new product line or to refurnish your office, or if you are in a dire need of fast capital to avail a time-sensitive business opportunity, and if you have a poor credit history but consistently process a substantial volume of credit card transactions then MCA might be a more suitable option for you.
All in all, before deciding on a funding option it is integral to meticulously evaluate your business needs and assessing how every option works, before signing any agreement.
