Pros and Cons of a Merchant Cash Advance

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Written by Michael Foote , founder of Quote Goat, with over 13 years experience working in the finance, insurance and currency sectors.

Merchant cash advances are a relatively new type of short-term, unsecured business finance. Around for only a few short years, merchant cash advances are the new kid on the block in the world of finance, but they’ve become increasingly popular of late, with some business owners favouring the flexible repayment terms and viewing them as a less risky alternative to a traditional business loan.

But despite their surge in popularity, some people still have a lot of questions about MCAs. Many business owners don’t fully understand the difference between a merchant cash advance and a loan, while others have never heard of them at all!

As with all types of borrowing, there are things you need to take into consideration before you commit to a merchant cash advance. The suitability of this type of finance will depend on your circumstances, so it’s important to know the ins and outs so you can decide whether this is a viable option for you. To help you weigh up the suitability of an MCA, here are the pros and cons.


More flexible repayment structure

The biggest advantage with a merchant cash advance comes with the repayment structure. With this type of borrowing, you’ll only pay back an agreed percentage of your credit and debit card takings. That means if you have a particularly bad month, you don’t need to worry as your repayment costs will reflect the performance of your business.

Speedier process

The application process can be a long one when applying for a traditional loan, but with merchant cash advances the process is usually much quicker. Once you’ve submitted your application, typically you’ll only need to wait a matter of days before the funds show up in your account. This can be a God-send if your business is in desperate need of funds.

Poor credit not an issue

As the application approval will usually be based on your business’ takings rather than your credit history, you don’t necessarily need great credit to receive approval. This differs from the application process for a business loan, as you’d usually be rejected if you have poor credit history.

No need to put up any collateral

With a secured business loan, you’ll be required to put up property or possessions as collateral. In the event anything goes wrong, the banks will look to repossess it to cover the costs of the loan. With merchant cash advances no collateral is needed, so that’s one less thing for business owners to worry about.


Expensive form of lending

Before you dive right in, it’s important you’re aware that merchant cash advances can be an expensive type of finance. Clearly, all those advantages were going to come with a cost, and it can be a pretty hefty one with some lenders. Whether it’s worth paying will depend completely on your own personal circumstances.

Funds deducted daily

With MCAs, lenders take their percentage from your earnings every day. If the reason you’re seeking financing is because you’re experiencing continuous cash-flow issues, it doesn’t make much sense to have your lender eating into your savings on a daily basis. So, if that’s why you’re looking to borrow then there are probably better alternatives out there.

Only suitable for certain types of business

While MCAs can be an excellent short-term option for businesses that take a large percentage of its earnings through card payments, companies that deal with a lot of cash don’t make great candidates. In fact, in many cases lenders will reject a business if a high percentage of its sales are conducted using cash.

Although merchant cash advances are becoming increasingly popular, many business owners are still quite unsure about the ins and outs of this relatively new form of lending. Hopefully, this guide to the pros and cons of MCAs will clear up some of the confusion. For some of the market’s best deals, compare merchant cash advances with Quote Goat.


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