Simple application process
MCA application processes are straightforward. For most lenders, you can apply entirely online by completing the application and uploading the required supporting documentation. Supporting documents typically involve credit card processing statements.
Traditional bank loans usually require a lot of paperwork and take longer to process compared to an MCA. Merchant cash advance typically requires substantially less documentation, and lending firms arrive at a decision in as short as two days.
2. Perfect credit is not required
Some businesses have a rough start and because of it, suffer from bad credit. The whole point of applying for an MCA is to get them back on their feet. With MCAs, perfect credit is not a requirement. However, most lenders will require that you meet a minimum credit score in order to qualify for an advance.
3. Flexible payments
When you take out a traditional bank loan, you will have fixed payments which means that you pay the same amount every month or whatever your terms are regardless of your cash flow. This is a struggle for businesses who have slow months.
Payments with a merchant cash advance are much more flexible since the percentage is based on your credit card sales, making your payments proportionate to whatever your business brings in. This means not having to worry about your ability to pay even for low-revenue days.
4. Fast approval and funds release
By the time most businesses apply for funding, they’re already in a bind and need the funds as soon as possible. MCAs are the better option compared to traditional bank loans in this regard. For some lenders, decisions are made within hours as long as they have all requirements and documentation needed. And once the lender arrives at a decision, funds can be delivered in just a few shorts days. In fact, some lending firms guarantee a decision and access to funding within 24 to 48 hours.
5. No collateral
If you do not repay the advance, your company assets are not at risk because there is no collateral requirement for MCAs. This relieves you from the worry about having any personal liability.
Cons of a Merchant Cash Advance
The reality is that merchant cash advances come with paydayloansohio.net/cities/worthington/ their fair share of disadvantages. The most glaring one is that they are one of the most (if not THE most) expensive financing option available out there.
1. MCAs are not regulated
The laws limit lending firms and banks from charging high-interest rates. Merchant cash advances can claim that because they involve future income, they are technically not a traditional loan and therefore, not bound by state usury laws. Because MCA lenders can justify that these laws don’t apply to merchant cash advances, they decide the percentages.
In desperate times, business owners ount, extremely high retrieval rates, and otherwise unreasonable term by a lender. And because merchant cash advances aren’t regulated, the business owner is legally bound to that financial contract.
2. More expensive than traditional loans
Because the merchant cash advances are typically less than one year, lenders putting up the financing don’t have to follow the same regulations on interest rates that traditional lenders comply with by law. Business loan rates range roughly between 6.25% and 12%. With merchant cash advances, retrieval rates can range between 5% and 20%.
Merchant cash advances are comparatively more expensive than other bank loan products. According to Leonard C. Wright, CPA and Money Doctor columnist, the annual percentage rate (APR) for a merchant cash advance fee can range between 60% and 200%.