Merchant Cash Advance (MCA), also called Merchant Cash Advance, provides a respite to many businesses that are not approved for loans due to their risk, low credit score, lack of acceptable collateral, or newness in the industry. With all the advantages that MCA provides, business owners would still prefer a loan or line of credit. This is because the interest rates charged by mca providers can reach 30%-200% APR, an unaffordable cost for any commercial company.
Points of sale for business cash advance
MCA providers work hard to convince clients that the business cash advance is not a loan. It is a purchase of your future credit card sales. Therefore, it does not involve the gibberish of acquiring a loan. The advance is transferred to your account in a week or so; There is no guarantee; the recovery rate is a percentage of your monthly sales, so it fluctuates with the income of the business; no press; minimal paperwork; and high approval rates.
At the same time, there is also a high recovery rate, short term of recovery (usually 9 to 12 months) and, in many cases, a contract that is as wide as possible.
Merchant Cash Advance: Is It A Sugar-Coated Pill?
Business owners who don’t have financing options other than MCA find out very quickly what a hole the down payment cuts in their income. While some ethical suppliers are working to keep the industry clean, there are those who leave little for a company to drive growth. Recovery rates alleged by renowned suppliers are less than 9 %; even as low as 1% for low-margin companies. However, many companies have to pay up to 30% as a premium on the money advanced to them.
Another important inconvenience of MCA is the ambiguous contract between the supplier and the client. The terms can be so broad that a company can be breached for making even the smallest changes to its business model. The suppliers avoid this position claiming that they pay the loss if the business sinks. However, this in no way reduces the risk to the customer.
The fact that MCA is not a loan is also its biggest risk, since it is not regulated by the laws that govern credit institutions. This gives providers a lot of leeway. The contract is your only safe haven, so it’s doubly important that you fully understand it.
What is the way forward for the CAM industry?
The CAM industry has been growing despite its high cost. Industry leaders recognize that fraudsters in their midst will not only bring the profession into disrepute, but also attract the attention of regulators. They have joined forces to form the North American Merchants Advancement Association (NAMAA) to bring some order to the industry. Namaa has published guidelines for customers to protect them from unpleasant suppliers.
It is not viable for all types of companies to obtain financing from conventional sources. For them, MCA is an option that, although expensive, is the only one available. Outside brokers often portray MCA as a boon to struggling companies. However, it is essential to understand its disadvantages before taking it on. In fact, professional CAM providers themselves want to be perceived as a source of funding for growth rather than liberation.
