Why Small Businesses Use MCAs

Starting and running a small business is expensive, and unless you’re a millionaire, you likely don’t have the cash on hand to get your venture off the ground. This is why small business financing is so critical to start ups; it opens your doors so you can begin to realize your dream. The business world knows two types of funding: traditional bank loans and alternative funding. Merchant cash advances, or MCAs, are part of a new and alternative way to fund your business venture, and there are many reasons why small businesses use them.

Merchant Cash Advance Basics

To understand why small businesses use MCAs, it’s important to understand what they are. A merchant cash advance is a cash loan that is secured by a company’s future sales. Money is deposited into the business’ bank account, and payments, alongside the agreed-upon interest rate, is automatically taken from the company’s debit and credit card sales. This can be done either daily, weekly, or monthly, depending on the financer and business owner’s preference, and the payment structure is flexible due to the fact that it is based on actual profits; if you have a slow week, your payments are less, giving you the leeway you need to continue your operations.

How the Money Is Used

Entrepreneurs find many uses for the MCAs they take out to fund their businesses. Whether you need cash to cover operating expenses, encourage expansion and growth, or start your venture in the first place, this money has no restrictions on how it’s spent. You use the money for your needs; the only thing the lender is concerned about is his or her percentage payments off your sales. So, when it’s time to shake things up a bit at your company, yet you don’t have the funds on hand to do so, you can take out a merchant cash advance to give you the financial resource you need for your next project.

How They Affect Your Bottom Line

Perhaps the number one reason why small businesses use merchant cash advance funding is because it doesn’t affect their financials. Technically, this cash advance doesn’t count as “debt” on the records, so any debt calculations being present to other lenders for larger loans will not reflect the MCAs pending. Because of the automatic payment structure, these loans don’t generally affect your credit score either, so you can borrow and payback the money you need without it compromising your other long-term financing needs.


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