Weighing the Pros and Cons of Merchant Cash Advance (MCA) Loans

Small businesses looking for working capital often have to look to many sources to find all they need. One possible solution for cash-strapped companies could be a merchant cash advance loan. With these loans, borrowers can receive a lump sum of money, which is then repaid from future credit card sales. While a cash advance loan can be very helpful, entrepreneurs need to consider all the risks as well.

Pros of Merchant Cash Advance (MCA) Loans

1. Easy to Qualify

Merchant cash advance loan credit standards are very minimal. Businesses do not have to have been operating very long or have stellar credit. Lenders will typically want to see some basic financial information including how much the firm has made in credit card sales over the past three to six months. With such loose requirements, most businesses can qualify.

2. Quick to Obtain

These loans are typically doled out within a week of application and sometimes within 48 hours of approval. That definitely beats the months it can take to get a traditional bank loan.

3. No Minimum Payments

Unlike with most other types of loans, there is no stressful minimum payment amount to repay each month because the lender simply takes a portion of each of the company’s credit card transactions.

4. No Collateral Required

Most bank loans require substantial collateral, but merchant cash advance requires nothing more than proof that there have been enough credit card sales to warrant the loan.

Cons of Merchant Cash Advance (MCA) Loans

1. High Costs

There are very high fees associated with cash advance loans. Lenders may take up to 25 percent of each credit card sale, with annual percentage rates coming to anywhere between 60 percent and 200 percent. Borrowers should clearly understand what they are giving up before signing.

2. Less Regulation

The merchant cash advance loan category is not as well regulated by the government as traditional bank loans. There may be less recourse if the loan goes sour or there are shady circumstances.

3. Business Restrictions

In order to make sure they get their money bank, lenders may make some restrictive stipulations on businesses. These could include things like not giving discounts to cash-paying customers, not being able to change locations, or taking out additional business loans until the debt is repaid.


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