Running a business can be a fascinating idea for some. However, those who have their own company know that it is very stressful and complicated as well. The one point about a business that everything circles back to is money. Money is the very reason that most people get into business and it is the same reason that many companies go out of it as well.
A lot of the times, business owners find themselves in a situation where they need access to capital or what might be called as speedy business loans immediately. It may be to settle a deal or to be able to dive into an opportunity that has presented itself. Lack of cash at such times can break the company and its reputation.
Merchant Cash Advance
Technically, A Merchant Cash Advance isn’t a loan, but it is a cash advance that is based on the model of credit cards sales in the business. Small businesses can also apply for an MCA, and their account would have the advance deposited in them in the next couple of days. This is an example of speedy business loans.
The way that MCA providers weigh and calculate the risk and the credit criteria is different from that of a banker. The daily credit card receipts are checked to determine whether the business would be able to pay back the amount or not.
Sometimes, the rates of a particular merchant cash advance are much higher than the other financing options. Depending on the company, it could be very high also. Although the primary aim of MCA was to provide solutions to future credit card sales, it evolved into a solution for sales of any kind. Speedy business loans or business cash advance would be a better and a more accurate name for it.
MCA vs. Speedy business loans
A business loan and a Merchant Advance Cash are two of the financing options that are available to give small businesses some working capital. Both financing options are good, but they cater to different needs and requirements.
Speedy business loans or Short-term business loans are a pretty standard option that provides working capital. It works just like any other loan or a mortgage. You can pay back the loan in forms of return or fixed amount of payments. These types of loans have an average interest rate of about 40%, the payment of which is spread across the duration of the payback.
The way in which you pay the loan can vary from daily to weekly or even monthly installments. However, they all come with a maturity date by which you have to pay back the amount in full. A loan is typically somewhere between $5,000 to $500,000 and can be received in 1 to 3 working days, which is why it is often called as speedy business loans.
On the other hand, a Merchant Cash Advance is not a loan. Instead of giving the business working capital, the MCA providers buy a certain amount of future credit card receivables at a discounted price. The advance payment of the lump sum can be repaid with a percentage of daily debit or credit card receipts.
The mentioned percentage is called as the “holdback percentage.” They tend to wary on a day-to-day basis although they do remain constant throughout the entire span of MCA. Because of this, there is no set or fixed date by which you have to make the full payment, which means that the APR can vary from anywhere between 80% to 120%. However, most of the MCA’s are cleared up in 4-18 months.
It usually takes about 1-3 days for the funding of MCA to take place, which is why they can also be called as speedy business loans although technically it isn’t a loan. The amount of the payment made can be somewhere $5,000 to $500,000. One thing to notice is that it cannot be more than 50% of that particular company’s credit card sales (annually).
Benefits of availing MCA
- The process is straightforward and convenient. All you have to do is to fill a form online with some of your personal information like your Business ID as well as the recent credit card statement which pertains to the business that you are taking the loan against. Once you fill the form with the information, then you should be contacted in the next 24 hours.
- It is a considerably speedy business loan as you can have access to the capital from the provider in a week’s time if your application gets approved. Having access to the money in such a short amount of time is one of the most significant plus points as businesses usually don’t have much time to spare waiting for the loan to be approved.
- Another major plus point of securing an MCA is that the advance payment will in no way negatively impact the businesses credit score. This is because securing an MCA is technically not taking a loan but the business is just selling the credit card sales in return for some capital. Most of the providers don’t even look at your credit score as criteria to qualify for the loan.
- Stress comes as an integral part of running a business as there are so many things that the business owner has to take care of. Add to this the shortage of cash, and it could potentially shut down the whole operation. MCA saves you from that extra pressure so you can relax and focus on the things that matter.
Although MCA is also a form of speedy business loans, there are other options available as well that would also qualify as being speedy business loans. MCA works more from an advanced payment model. It depends on the business that needs the capital to decide, which model works the best in their interests.