Merchant Cash Advance (MCA) as alternative to conventional business loans

A financing option not considered by many small business owners who are in need of financing to expand or operate their business on an ongoing basis is a merchant cash advance. A merchant cash advance from can be a cheaper alternative to a payday loan or a cash advance from a personal or corporate credit card. A merchant cash advance is a perfect solution for a business owner who does not want to have to deal with remembering to make regular payments to a lender. Instead, a merchant cash advance allows the business owner to concentrate on running their business while the proceeds of the loan are automatically deducted from his or her credit and debit card receipts. A merchant cash advance also has the advantage that it does not require the small business to pledge any of his or her personal assets as collateral for the borrowed funds and typically does not require the small business owner to sign a personal guarantee of the loan proceeds. The loan proceeds are instead secured by the actual business’s credit card sales themselves.

How a Merchant Cash Advance Works

A merchant cash advance is a type of loan that allows business owners to obtain (typically short term) financing to assist them in funding their business’s needs for a set period of time. The money is paid in a lump sum to the small business owner by the lender. The merchant cash advance is then repaid through the small business’s daily credit and debit card receipts. A merchant cash advance is therefore unlike a typical loan or financing transaction in that the method of repaying the loan does not come from the business owner or business him or herself or itself. Instead, the lender or provider of the merchant cash advance “lends” the money to the small business but then is repaid directly from the small business’s receivables. This typically occurs by the lender directly taking a specific proportion of the business’s credit and/or debit card receipts through an arrangement with the business’s payment processor.

Advantages of a Merchant Cash Advance

A merchant cash advance can provide advantages to a small business owner who is in need of money to operate or grow his or her business. Merchant cash advances offer a convenient and pain free method of repayments for the small business owner, as he or she does not need to send in weekly, bi-weekly or monthly loan payments. Instead, the funds are sent directly from the small business owner’s payment processor to the lender. Thus, a merchant cash advance allows a business owner to simply focus on his or her business without requiring them to remember to send in a check or other payment on a loan at whatever specified period is required with another type of financing transaction. However, this can also be a negative in that a business owner will not be receiving whatever percentage of the daily credit card transactions generated by his or her business.

Merchant Cash Advances Are Secured by Your Business’s Credit Card Receipts Rather than Any Personal Assets of the Business Owner

Finally, and unlike with many other types of loans, a merchant cash advance is an unsecured loan. This mean there is no requirement that a small business owner pledge any collateral in exchange for the funds provided by the lender in a merchant cash advance. Nor do most lenders require that a business owner sign a personal guarantee of the loan like with many other types of loans. Instead, the “collateral” in a merchant cash advance is the small business’s credit and debit card receipts themselves. In addition, merchant Therefore, the small business owner is not in jeopardy of having their bank account garnished or their house seized like might be the case in the event of non-payment of a secured loan.

Takeaways

  • Merchant cash advances can be a financing alternatives for small business owners who want to concentrate on running their business and not having to worry about hassle remembering when their repayments on a more traditional small business loan are due.
  • Merchant cash advances are secured by the credit card receipts of the business itself and are paid back to the lender directly by the small business borrower’s credit card processor instead.  This can be both good and bad, as it leaves the borrower with fewer daily receipts than in the absence of a merchant cash advance.
  • Merchant cash advances also have the advantage that the lender typically does not require that the borrower sign a personal guarantee or pledge any personal assets.

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