A merchant cash advance, also called an MCA, is a type of short-term loan that many small business owners consider to help them manage their cash flow.
The money you get from this kind of advance goes directly into your bank account in about 24 hours and can be used to pay the bills or purchase inventory. But before you apply, there are several things you need to know about MCA loans so that you can make the right decision for your business.
How does a merchant cash advance work?
A merchant cash advance (MCA) is a short-term loan that helps finance credit card processing. It provides capital to businesses with bad or no credit, and relies on future credit card sales to repay debt rather than an equity stake in a company. MCAs make up part of alternative finance, which also includes invoice factoring and online peer-to-peer lending.
Do you need a merchant cash advance?
If you’re thinking about taking out a merchant cash advance, you’re probably weighing your options. If a traditional bank loan seems unattainable or if other funding sources are unavailable to you, a merchant cash advance might be worth considering.
If your small business is in need of capital to purchase inventory, expand marketing or new hires, a merchant cash advance can be a great option. You’ll receive cash upfront in as fast as 34 hours in exchange for a portion of your businesses future credit card sales. A merchant cash advance can provide valuable funds that you might not be able to get from traditional lenders such as banks.
Does a merchant cash advance report to credit bureaus?
For people who have not heard of merchant cash advances before, they may be unsure about whether or not a merchant cash advance will affect their credit score. To clear things up, most merchant cash advances do report to credit bureaus. However, many do so only minimally.
This means that although a credit bureau may list that you have applied for a merchant cash advance, they will not list how much money was actually advanced to you and how long you used it before paying off your balance.
What happens if I don’t repay my merchant cash advance on time?
Paying back a merchant cash advance loan can be tricky. If you don’t pay back on time or in full, it can make applying for future financing more difficult. You also may be charged a higher factor rate, which will further increase how much you need to repay. To avoid these consequences, use your merchant cash advance as intended and pay it back on time.