Last post: Oct 1, 2018
Merchant cash advances (MCAs) have attracted ever-greater attention in recent times as an alternative form of business finance, and are compared especially often to traditional bank loans, to such an extent that they may sometimes be casually referred to as ‘cash advance loans’. In truth, though, an MCA is different to a loan – in terms of not only the form that it takes, but also what is required to apply for one and the business circumstances to which it is best suited.
Merchant cash advances (MCAs) have attracted ever-greater attention in recent times as an alternative form of business finance, and are compared especially often to traditional bank loans, to such an extent that they may sometimes be casually referred to as 'cash advance loans'. In truth, though, an MCA is different to a loan – in terms of not only the form that it takes, but also what is required to apply for one and the business circumstances to which it is best suited.
So, let's look at some of the basics of how these two potential business funding avenues differ.
Business cash advances vary from loans in many key ways
Stop to think for a minute: when contemplating taking out a loan to help with a company's cash-flow or to enable it to invest in essential equipment or expertise - or even to add a new product or service to its offering - what should be expected? The likelihood is a lump sum, which must then be paid back in fixed, regular instalments over a period of months or years.
A merchant cash advance, however – also sometimes called a business cash advance (BCA) – is very different. Yes, it entails you receiving a lump sum in much the same way as a loan works, but there is no collateral or personal guarantee required to obtain it, and the money is paid back as a percentage of your business's debit or credit card sales over an open-ended time period.
This means that those with an MCA pay more money back at busier times for their business when their credit or debit card takings are higher, and less during quieter periods. It is, then, a very flexible and manageable business finance option, as opposed to the rigidity inherent in the process of repaying a traditional business loan, with its unchanging instalments at identical intervals over time.
Nor are the requirements for qualifying for one quite the same
One of the major reasons so many organisations give a BCA such serious thought in the first place is the difficulty – whether perceived or actual – of obtaining a traditional bank loan. When applying for the latter, the lender will probably peruse the personal and business credit information, as it attempts to determine whether the repayments are manageable.
The equivalent process for an MCA is not as long-winded or as stressful for the applicant, largely due to this solution being financed through the business's card processing firm. Such companies have extensive data in relation to your card transactions at their fingertips, so you could receive a quote for an MCA within seconds of applying, and the money in 72 hours.
Both of these popular forms of business finance do have qualification requirements, however. In the case of a bank loan, you will probably be expected to have spent at least two years in business already, in addition to having a positive daily bank balance, acceptable credit and no excessive loans, open judgements or bankruptcies.
The requirements for an MCA, meanwhile, tend to revolve around the applicant business's level of monthly card sales and turnover. This should be unsurprising, given that it is through your business's card payments that you will pay back the lump sum – so the more frequently your firm uses card terminals, the more sense a business cash advance is likely to make as an alternative finance source.
The ultimate choice may depend on your business's specific circumstances
While your ability to secure funding will likely be one influential factor in what type of business finance you opt for, it's also important to consider the nature and growth stage of your company in assessing the most suitable option.
It's a good idea to only seek out a traditional bank loan, for example, if your business is sufficiently established and profitable to be able to comfortably accommodate the regular and unchanging repayments. It is often an especially appropriate funding avenue for business-to-business (B2B) companies.
In any case, smaller and younger business-to-customer (B2C) firms are often especially enticed to apply for an MCA on account of the ease of obtaining one, the manageable and flexible nature of the repayments, and the fact that as it is not a loan, it will not appear as such on their credit report.
A merchant cash advance can be used in all manner of ways to help your business to grow. So, why not complete and submit our online enquiry form on the Choice Business Loans website today to learn what advance amount you could obtain through our professional and informed experts?
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