Merchant Cash Advance Vs. Unsecured Loans

Courtesy of

So the question is, is a Merchant Cash Advance (MCA) right for your business concern, or is unsecured business loan better? Let’s take a look at the two. The MCA stared out as advances from credit and debit card sales such as restaurants or retail establishments. Now such transactions are for other businesses that do not rely heavily on credit or debit card sales. MCA is promoted not to be loans but cash advances on the projected income from merchants who provide credit cards for their patrons.

MCA provides upfront cash advances in a lump sum for exchange for a slice of the merchant future sales. There are two ways MCA can be structured, 1) upfront lump sum cash for what can describe as a partnership for future credit/debit card sales of the business. The remittance paid daily or weekly debits of fixed amounts from the merchant’s bank account, which known as ACH, which stands for automated clearing house withdrawals. Thus, said to be the most common type of MCA, according to Sean Murray, who was a former merchant cash advance broker and founder trade magazine deBanderd. However, the cost of such transaction are expensive and are generally better suited for a merchant who has poor credit, those who have better credit would be advised to seek unsecured business loans which will give better rates and terms.

The question is how much the merchant will pay in fees; these are factors what the provider feels the merchant can repay. Typically this can range from 1.2-1.5, and based on the assessment of the provider, the more excellent the factor rate, the higher the fees. Thus, for one to understand the repay amount, you multiply the factory rate time the cash advance to one’s entire repayment amount. Here is an example; let’s say you were given an advance of $50,000.00, and it carried a factor rate of 1.4, which represents a total repayment of $70,000.00, which now includes fees of $20,000.00. Hence, there are two methods of repayments 1) percentage of credit card sales and 2) fixed daily withdrawals.

Calculating the cost of an MCA

One’s annual percentage rate is the representative of the entire borrowing cost of the merchant, and this includes all fees and interest. Such also depends on how long it takes the merchant to repay the said advance in full. Usage of the Annual Percentage Rate (APR) calculates the borrowing cost of the merchant’s cash advance to that of other business loans. But why do merchants opt for MCAs? Notably, the MCA is a financing tool of last resort; they do have benefits for merchants who have problems when going to the bank or other traditional lenders for loans.

Here are three reasons why merchants will choose an MCA: 1) they are quick, one can generally get an MCA within a week with little paperwork. Merchant providers are looking at the collateral of the credit/debit card customary transactions to determine if the merchant can repay the advance, which not considered a loan. 2) MCA is unsecured, so the merchant does not need to have collateral or forfeit any personal or business assets if the advance is not repaid. Most traditional lenders do what to see insurance or collateral; however, with MCA, there is no recourse. Some merchant providers may request a personal guarantee from the merchant and is a way for the providers to recoup some of there money if things go awry.

Unsecured Business Loan

If a merchant has a reasonable FICO score of 561 and above they should seek an unsecured business loan, you can get more money, the terms are more extended, and rates cheaper, and the repayment fixed, and they are tax-deductible. Donald E. Mitchell Agency, Inc has partnered with an entrepreneurial lender that lends to entrepreneurs with no collateral. However, five criteria looked at from the merchant. 1) Time in Business: 5-years +, the length of time the merchant has operated their business is a plus under the same management show stability. 2) Business Checking or Saving Accounts: when it comes to qualifying for the loan, a checking account gives evidence of the business cash flow, and creditworthiness; without it, it will be challenging to show solvency, and get the loan.

3) Credit Score: minimum FICO score of 561. 4) Annual Sales: $500,000.00, and 5) Debit to Credit Ratio: like most lenders, they want to examine one’s debt to credit ratio to make sure the merchant is not biting off more they can handle, and there is a likelihood of repayment of the loan. With all the above, we can have an approval in 24-hours and funding in 3-business days. For a limited time, there is a “New Client Reward/Promotion” up to $3,000.00 for taking out a new loan. The merchant will receive a free Amex Gift Card as soon as the loan funds.

Next step, let’s get started in qualifying you for an unsecured business loan for your business today. Call us toll-free at (866) 400-3040 today.

Need Help? Have Questions?