Pros of MCA
Quick funding
MCA allows fast access to funds in as little as 48 to 72 hours. All that applicants need to do is submit application ith Merchant Banking statements and cash flow statements for the previous 12 months and the amount will be credited to their accounts directly upon approval. This is a big plus for small businesses that are trying to plug in cash crunches during limited time frames.
Pay as you earn
Unlike loan repayments, MCAs don’t need to be repaid in fixed sums, rather borrowers only need to repay a fixed percentage of their daily sales. So, if a business is going through a slump, then an MCA could be a better option as they are only to pay a certain percentage of the sales, irrespective of how high or low the sales volume is.
No need for precious credit rating
One of the reasons most small businesses don’t qualify for short term loans is because of their credit scores or the lack of it. The good thing about MCA lenders is that they are not looking for a credit score, rather all they need to see is how the applicant’s business has been doing over the last few months. They ascertain this with the help of the bank statements and cash flow statements of the applicant and zero down on the fee based on the same. Therefore, a new business or one with a bad credit rating can apply for an MCA, as well.
Cons of MCA
Expensive funding
The price of easy and immediate funding is expensive. MCAs have been known to have high annual percentage rates. However, businesses that are in dire need of finances and are confident that they will rebound and pay back the principal and fee in full through their future sales often do choose MCA as their choice of funding.
Strict guidelines
MCAs, to ensure full repayment, might have small businesses only allow card payments and not entertain cash payments at all. Also, they might not allow businesses to take a break or close for a while, as this might impact their repayments. These are pointers that every business should consider before opting for an MCA.
Short term solution
MCA is more of a stop-gap arrangement and in no way should it be treated as a long term solution. If a business keeps shelling out its revenues (aka profits) over a long period, it will impact its growth which is not good for any business.