Recently, there seems to have been a fierce rivalry between two parties: those who support MCAs (Merchant Cash Advances), and those who condemn this method of borrowing in favor of traditional bank loans. For someone who is new to the business world and looking for a way to fund their business, this entire thing can be a bit confusing, to say the least. Understanding the basics before making a financial decision is crucial, so researching the pros and cons of each type of loan and comparing it to your business’s needs regarding growth and operations should be at the top of your list of priorities.
MCAs are a great option for a business which is just finding its footing, but has some shortcomings which make some people uncertain regarding their opinion on this method. With this plan, a loan is received through a merchant who processes the payments received from debit and credit card payments throughout the business day, which then takes a percentage of the day’s credit and debit sales as a form of repayment. This option has several advantages that cannot be found in bank loans, such as a quick access to the borrowed money, no need for collateral, no interruption of cash flow with the method of payment and much more. However, this option can be a bit more expensive in the long run than the traditional method, and interest rates are made by private businesses, and therefore can vary a great deal.
Bank loans are setup most people think of when the term “loan” is mentioned. Money is borrowed and repaid on a monthly basis in agreed-upon amounts. This setup can be cheaper in the long run, and unlike with MCAs, interest rates are overseen by the Small Business Administration, and are therefore held to certain standards. Furthermore, the terms of repayment for bank loans usually last longer than those of the other types of loans out there, up to five years in many cases. However, many small businesses have trouble getting a bank loan, and doing so can be an expensive process. Many also require collateral which cannot be sold later on, limiting an owner’s options when it comes to upgrading their company and facilitating growth for the future.
Both options are viable for those who are looking to fund a business. However, knowing which one is best for your business is a matter of researching the subject carefully and comparing and contrasting the information with your business’s needs. Be sure to make an informed decision that can help your business in the future.