What Does a Business Owner Need to Know About Merchant Cash Advance (MCA)? - Truck Dispatcher Training

What Does a Business Owner Need to Know About Merchant Cash Advance (MCA)?

Before applying for an MCA, you need to understand how much of an impact they can have on the business and how.

Owning a company involves situations where fluctuations related to cash flow entail certain difficulties. Many businessmen consider Merchant Cash Advance in such difficult cases. But before making that decision definitively, you should make sure you understand their operating principles and ability to have a strong impact on the business.

What is it?

Simply put, an MCA is a financial advance for a business. It is based on projections of future sales based on recurring card transactions. With an MCA, a business is given a lump sum that becomes part of the cash flow. The entrepreneur or their group, in turn, agrees to give the lender the right to withdraw payments from their bank account for immediate cash back.

What Does a Business Owner Need to Know About Merchant Cash Advance (MCA)?

Why This Particular Solution?

The government generally does not regulate it. For this reason, your organization will probably receive Merchant Cash Advance instantly. The capital is immediate and short-term, which makes it indispensable in critical times when you need supportive funding. 

How is it Different From a Classic Loan?

Here there is a tie-in to projected sales transactions. The payback depends on debit and credit transactions. In the absence of any regulation, the payback structure also varies, ranging from 14 to 50% per dollar. The period of such a loan is also different, and it is usually longer than a conventional loan. An important role is played by the entrepreneur or manager’s understanding of the payback structure before taking this step. After all, simple math says that success depends on the number of sales and their amounts. 

What are the Disadvantages of the Program?

Markets that are not regulated function in several ways. 

What Does a Business Owner Need to Know About Merchant Cash Advance (MCA)?

In this case, the business gets an impressive rate of development and flexibility in its actions. Nevertheless, it faces certain risks. At first glance, tying borrowed money to future transactions may seem a perfectly legal and harmless type of collateral. However, no one can predict the future. For this reason, the perceived amount of risk the client pays for the MCA, and at times it can become extremely high, as already noted, due to the lack of legislative regulation. 

If the client suddenly needs more time to recover than they originally planned, they risk paying a larger amount. This can eat up the lion’s share of sales, to put it simply, a fraction of the profits. And if he blows it, there’s a good chance he’ll end up in debt. 

Along with this, many Merchant Cash Advance lenders have access to a borrower’s bank account to automatically charge them on a daily basis. From a logistical point of view, this is easy, but for businesses, such a move can lead to even more cash flow problems.


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