Learn about all the pros and cons of a merchant cash advance. Merchant cash advances (MCAs) are a popular alternative to getting a small business loan. They provide access to needed capital to small business owners that wouldn't otherwise be able to invest in expanding their business or find a bridge to carry them through a rough patch. Like any financial obligation, an MCA has its own collection of advantages and disadvantages that must be considered while deciding whether to take it on. So please review our slide deck above to see some of the pros & cons!

1. 10 Pros & Cons of
Merchant Cash
Advances for
Small Businesses
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2. WHAT IS A MERCHANT CASH
ADVANCE (MCA)?
• Popular alternative to traditional small business loans.
• Provide needed capital to small businesses.
• Are a cash advance against future credit card sales.
• Paid back by fixed portion of credit card revenue.
But what do the details look like?
View the full article: https://www.unitedcapitalsource.com/blog/10-pros-and-6-cons-of-merchant-cash-advances-for-small-businesses
.

3. KEY TERMS USED
IN A MCA DEAL
Advance amount – actual cash in
hand that goes into the business
owner’s bank account. This money
can be used to buy equipment or
cover payroll.
Factor rate - is the number that sets
the total amount the business owner
has to pay back for the MCA.
Retrieval rate - fixed percentage
taken out of credit card sales to pay
back the MCA.
.
View the full article: https://www.unitedcapitalsource.com/blog/10-pros-and-6-cons-of-merchant-cash-advances-for-small-businesses

4. Let's say a restaurant needs to upgrade some kitchen equipment.
Restaurant owner “Richie” enters into an MCA deal. His advance
amount is $50,000. So he has $50,000 to spend on the new
kitchen equipment.
The factor rate on his MCA deal is 1.3 (factor rates generally range
between 1.12 and 1.5). That means restaurant owner Richie will have
to pay back $65,000 (50,000 x 1.3 = 65,000).
He agreed to a retrieval rate of 10%. If he does $2,000 a day in
credit card sales, $200 of that will go to his MCA lender until he
pays off the full $65,000 ($2,000 x 0.10 = $200). Retrieval rates
can range between 5% and 15%.
.
View the full article: https://www.unitedcapitalsource.com/blog/10-pros-and-6-cons-of-merchant-cash-advances-for-small-businesses

5. PRO
1. Available to people and
businesses with bad credit
An MCA looks forward to future
sales, not backwards. So a bad
credit rating, which is based on
past history, isn't relevant to the
lender.
This is why MCAs have higher
approval rate than small business
loans
.
View the full article: https://www.unitedcapitalsource.com/blog/10-pros-and-6-cons-of-merchant-cash-advances-for-small-businesses

6. PRO
2. Merchant Cash Advances
are easier to qualify for
overall
Depending on the advance
amount sought, the variables of
average amount of monthly credit
card sales over what period of
time will vary.
What could disqualify you from
an MCA deal? Having a prior
bankruptcy, not currently
processing credit card sales or
enough in credit card sales, or
being in business less than six
months.
.
View the full article: https://www.unitedcapitalsource.com/blog/10-pros-and-6-cons-of-merchant-cash-advances-for-small-businesses

7. PRO
3. Applying for an Merchant
Cash Advance is simple
MCA requires much less
documentation and takes less time
than a small business loan. They’re
done mostly online and requires
minimal paperwork - just what's
needed to verify you meet the credit
card transaction requirements.
Instead of needing hours of your
time preparing the business loan
documentation, the statements
needed by an MCA lender are quite
easy to put together.
.
View the full article: https://www.unitedcapitalsource.com/blog/10-pros-and-6-cons-of-merchant-cash-advances-for-small-businesses

8. PRO
4. Receive cash fast
The process is faster and done
mostly online, the business owners
get the cash much faster.
In some cases, a business owner can
have cash in their bank account in 24
to 48 hours.
.
View the full article: https://www.unitedcapitalsource.com/blog/10-pros-and-6-cons-of-merchant-cash-advances-for-small-businesses

9. PRO
5. Get a smaller business loan
than banks may require
Banks don't generally write business
loans for small amounts. Banks are
incentivized to prefer larger loans.
Most small business owners are
looking for anywhere between $5,000
and $25,000.
An MCA deal works for both business
owners and lenders in these lower
amounts, so there's no need to take
on more debt than necessary.
.
View the full article: https://www.unitedcapitalsource.com/blog/10-pros-and-6-cons-of-merchant-cash-advances-for-small-businesses

10. PRO
6. Amount owed never grows
because there’s no interest
A Merchant Cash Advance isn't a loan.
The business owner pays the factor
rate, but it's not interest.
The total amount you would owe on
an MCA doesn't change. Restaurant
owner Richie owes $65,000. If he has
a slow period during which his
repayments are lower than usual, that
doesn't increase the overall cost of his
MCA.
.
View the full article: https://www.unitedcapitalsource.com/blog/10-pros-and-6-cons-of-merchant-cash-advances-for-small-businesses

11. PRO
7. No late fees – repayments
are made automatically
The lender gets paid directly from the
business owner's credit card sales via
the credit card processor.
The business owner never has to
worry about making a payment on
time, so payment is never late.
That means no late fees. It's very
common for the MCA lender to get
their retrieval rate on a daily basis.
.
View the full article: https://www.unitedcapitalsource.com/blog/10-pros-and-6-cons-of-merchant-cash-advances-for-small-businesses

12. PRO
8. No collateral required
If restaurant owner Richie sees lower
credit card sales than expected, it will
take longer for him to pay off the
MCA.
He doesn't have to worry about the
MCA lender taking his new kitchen
equipment. Nor does he have to
worry about having any personal
liability to repay the MCA.
Taking on the financial obligation of
an MCA inspires less stress than
business loans that require personal
guarantees and collateral to secure
them.
.
View the full article: https://www.unitedcapitalsource.com/blog/10-pros-and-6-cons-of-merchant-cash-advances-for-small-businesses

13. PRO/CON
Repayment amounts are fixed
percentage of sales
If sales are high, you'll repay the MCA
quickly. If sales dip, you're not on the
hook for a fixed, high repayment that
doesn't care if your revenues and cash
flow are low.
You'll never get slammed by high debt
payment in a slow month. That's a
serious "pro.”
The MCA lender has first priority on
your credit card revenue, which means
in a down month it may be more
challenging for you to meet your other
financial obligations.
.
View the full article: https://www.unitedcapitalsource.com/blog/10-pros-and-6-cons-of-merchant-cash-advances-for-small-businesses

14. PRO/CON
No fixed repayment term
If sales go down this may extend the
repayment period. That's a con. Of
course, it may not if your business
experiences an upswing within the
expected repayment term that balances
out the low period.
Taking longer than expected to repay
an MCA won't increase the overall total
of what you owe, such as having to
negotiate a business loan extension
would entail.
You can mitigate both these pro/cons
by negotiating a lower retrieval rate, as
opposed to factor rate.
.
View the full article: https://www.unitedcapitalsource.com/blog/10-pros-and-6-cons-of-merchant-cash-advances-for-small-businesses

15. CON
1. Merchant Cash Advance
money is more expensive than a
business loan
Richie is paying $15,000 to borrow
$50,000 on his MCA deal. If he qualifies
for a business loan and a bank would
write him a loan for $50,000 he would
probably pay much less than $15,000 to
get that money.
The higher cost on an MCA deal covers
the higher risk the lender takes on.
This is the trade-off for many of the
advantages of an MCA deal, particularly
the more flexible qualification criteria.
.
View the full article: https://www.unitedcapitalsource.com/blog/10-pros-and-6-cons-of-merchant-cash-advances-for-small-businesses

16. CON
2. Is it solving your
business need?
In our original example, restaurant
owner Richie needs the money to invest
in kitchen equipment, which is
presumably something that will
ultimately increase his revenue. This is
good.
If the cash flow crunch is not part of a
normal business cycle, then it's prudent
to take a closer look.
Is the MCA cash going towards buying
more inventory, which can be turned
into revenue? Or is to going to pay rent
or other overdue bills?
.
View the full article: https://www.unitedcapitalsource.com/blog/10-pros-and-6-cons-of-merchant-cash-advances-for-small-businesses

17. CON
3. Merchant Cash Advances
aren’t regulated
An MCA isn't a loan. A factor rate isn't
interest. As such, it's not regulated by
lending laws, including usury laws.
An MCA is a financial contract. The
application process may be fast, but
that's what's happening after you
decide where you want to apply for an
MCA.
Before that, you need to do the due
diligence and learn about the
differences in terms offered, and
reputation of the lender.
.
View the full article: https://www.unitedcapitalsource.com/blog/10-pros-and-6-cons-of-merchant-cash-advances-for-small-businesses

18. CON
4. MCA may have limitations put
on how you operate
your business
For example, you couldn't offer a
discount for cash payments that's not
also available to those paying by credit
card. So Restaurant owner Richie can't
offer free desserts if diners pay in cash.
Make sure to review any potential MCA
deal carefully to see what it includes.
Then you can make a determination if
those are operational controls you can
give up for the repayment period.
.
View the full article: https://www.unitedcapitalsource.com/blog/10-pros-and-6-cons-of-merchant-cash-advances-for-small-businesses

19. So does an MCA make sense for restaurant owner Richie? In his
case, it looks like the pros definitely outweigh the cons.
Never forget that an MCA is a financial obligation. So if you're
thinking about it, review this list to see where the pros and cons
fall for your business.
.
View the full article: https://www.unitedcapitalsource.com/blog/10-pros-and-6-cons-of-merchant-cash-advances-for-small-businesses