Merchant Cash Advance vs. Business Credit Cards
Understanding Merchant Cash Advance (Revenue Advance)
An MCA or Revenue Advance is an alternative business funding source that an entrepreneur can use when collateral or credit score is lacking. As opposed to a traditional loan, an MCA is the purchase of a business’s future credit card sales for a specified amount. When a contract is signed, the barrower receives a lump sum. Unlike a traditional loan that requires a fixed monthly payment, the business will only make flexible daily or weekly remittances to repay the revenue advance based on a percentage of actual future receivables until the contracted amount is reached.
Merchant Cash Advance Advantages
This business loan alternative is attractive because of different benefits, including:
No Need for Collateral or Credit – A Merchant Cash Advance will be a relatively safe way to receive cash. Traditional loans will always affect credit scores, but an MCA is only dependent on future sales. That is why an MCA is not present on any credit report. Losing collateral is not a risk, no matter what happens with the business.
Fast and Easy Application Process – Funding will always be fast, sometimes in as little as 24 hours, and the process is simple and straightforward. With a traditional loan, lenders will evaluate tax returns, financial statements, and the current business plans. However, MCA providers typically consider 2 main factors: length of time in business and monthly deposits via credit cards sales. Approvals are almost always certain if a business has monthly credit card sales of at least $7,500.
Fast Access to Cash – There is minimal paperwork needed so the turnaround time is very fast. A traditional loan can take months to process, but funding through an MCA is usually available within 1-2 business days. This is particularly important when immediate funding is needed.
Really High Approval Rate – Traditional lenders such as banks have made it extremely difficult for small business owners to qualify for loans. Banks reject upwards of 80% of the small business loans due to bad personal credit scores of the borrowers, limited time in business, collateral requirements, and other red tape. MCAs have the highest approval rates in the industry. Advances are rarely denied as long as borrowers meet the minimum requirements.
Repay Based on Revenue – One of the biggest issues with traditional bank loans is that they require a fixed monthly payment. If the company is facing a hardship, it will have trouble making the monthly payments. With a merchant cash advance, repayment is based on a percentage of actual future receivables meaning you only pay when the business is generating profit.
This sets MCAs apart from business credit card as business owners do not need strong credit scores to receive funds. All they need is to provide their recent bank statements to show that their business is excelling and making profits. Businesses may need to submit additional documents to apply for funds.
Understanding Business Credit Cards (Business Line of Credit)
A business credit card works much like a personal credit card. However, banks issue these credit cards to the business rather than directly to the individual. Business owners receive a credit line once approved. Like personal credit cards, business owners get an APR associated with their line of credit. It determines the interest rate a business must pay if it fails to completely repay the borrowed amount within a given billing cycle. The APR can be approximately 16 to 23 percent.
Merchant Cash Advance or Business Line of Credit – Which Is Best For You?
If you have the luxury of time and sufficient cashflow to pay credit each month a business credit card or business line of credit is a good option. However, if you have poor credit and need immediate access to working capital with flexible terms, an MCA might be the best alternative.
It is important to consult a professional after you have reviewed the different options available to you. If you think your business could benefit from a merchant cash advance, consider applying through ACR Funding. We have years of experience in providing alternative funding solutions for businesses of all types. We offer approvals within 24 hours and never charge an application fee. Contact one of our experts to learn more about our services and find the business funding option that is best for you.