Common Questions About Merchant Cash Advances

A merchant cash advance is not technically a type of loan, but it is a way for businesses to get funds that they can pay back ahead of time. However, only businesses that accept credit card sales can use an MCA. Luckily, in this day and age, most businesses can accept credit cards, and therefore can apply for an MCA.

What is the Difference Between MCAs and Loans?

A typical business loan requires a business owner to go to a lending institution. The lender will agree to give the business owner a certain amount of money, which will need to be paid back in a set incremental amount each month. These payments will both include paying back the original loan amount with added interest. Different types of business loans will come with different loan terms, amounts, and interest rates.

A merchant cash advance is similar to a loan, in that there is a set amount taken out and paid back with interest, but the repayment plan is much different. All of the repayment is directly dependent on the amount of credit card sales the business takes in. After a period (set by the MCA), a percentage of the credit card sales is sent to pay for the cash advance. These payments are usually made every day or week. Because of this, the payments are made in much smaller dollar amounts but made more often.

How Quickly is the MCA Paid Off?

As mentioned, the MCA is paid off with credit card sales. With each sale, a percentage (set by the MCA agreement) is used to pay off the cash advance. This means that smaller sales will give a smaller amount and larger sales will send a larger amount. Since the amount is automatically taken out of the purchases, the business owner doesn’t need to worry about making payments manually.

Because the payments are taken directly out of sales, the amount of time it will take to pay off the MCA will be directly determined by the amount of credit card sales a business makes. The more credit card sales, the faster the MCA will be paid off. Of course, larger cash advances will also take longer to pay off than smaller cash advances.

All in all, taking out a merchant cash advance is a great option for businesses that have a short financial history or a low credit score. They are the perfect way to get cash for a business quickly without having to take out a loan.