Every day, tens of thousands of businesses find themselves looking for a capital injection of some sort. With all the conflicting information (and misinformation) on the internet, one can easily find themselves downright befuddled. What are the best options out there? What do I qualify for? If you credit score isn't perfect, and/or you don’t have the required collateral to secure a traditional bank loan or line of credit, many business owners find their best (or only) viable option to be a merchant cash advance, or MCA. This is often the case for businesses with immediate capital requirements as well, however qualified the may be, due to the lengthy process of securing capital through traditional financing methods. But what exactly is a merchant cash advance, and how does it work?


Firstly I should share with you that a merchant cash advance is not actually a loan at all.
These deals weigh much more heavily (almost solely) on a business’ cash flow as the basis for creditworthiness, hence the availability of MCAs to even those with poor credit and/or no assets to hock. Understanding the metrics underwriters take into consideration when determining rates and terms offered to their clients, turns an otherwise vulnerable business owner into a savvy consumer of these products. We'll go more in depth on this in another piece.

So, if it's not a loan, what is an MCA? An MCA is actually a purchase of a business’s future receivables, but there’s more.

The way an MCA works, in a nutshell, is relatively simple, and makes horse sense. The business receives the funds it needs through electronic wire, and the lender is paid a small percentage of the repayment amount, usually on a daily basis, for a set number of payments. These payments are made via daily ACH from the business checking account.


So What’s The Catch?

“I mean, why wouldn't everyone opt for an MCA instead of waiting for the bank”?

For one, the fees on MCAs are usually higher than most traditional financing methods, typically rivaled only by some credit card rates. You’re definitely paying for the convenience, paying for the immediately available funds, and in some cases also paying for your lack of collateral and /or imperfect credit. If you have the time to wait and the credit score, and/or the collateral, an MCA probably isn't for you. Furthermore,trying to avoid outrageous broker fees can get hairy. Many broker fees are charged via a “fee sheet”, sneakily inserted into the funding agreement.

MCA’s are certainly not all bad though. If your business will benefit from the funding, if you can’t afford to wait weeks/months for the bank, or if you’re not qualified for a traditional bank loan, MCAs can be the clear winner for several reasons.


I hope you found this information to be valuable. If you think your business could benefit from a Merchant cash advance, or other type of loan product, visit https://funderhunt.co, the business funding marketplace, and avoid broker fees altogether.