MCA's are typically offered by alternative lenders, such as online lenders, and are often used to cover short-term expenses or bridge the gap between cash flow and expenses. The amount of money that can be borrowed depends on the lender, but typically ranges from $5,000 to $500,000.
The repayment process for an MCA is different from a traditional loan. Instead of making fixed monthly payments, the borrower agrees to repay the loan with a percentage of their daily or weekly credit card sales. This percentage is known as the “holdback rate” and is typically between 10-20%.
How Does an MCA Work?
When a business applies for an MCA, the lender will review their credit card sales history and other financial information to determine how much money they can borrow. The lender will then provide the business with a lump sum of cash in exchange for a portion of their future credit card sales.
The repayment process works by taking a percentage of the business’s daily or weekly credit card sales until the loan is paid off. This percentage is known as the “holdback rate” and is typically between 10-20%. The repayment process is automated, so the business doesn’t have to worry about making manual payments each month.
Benefits of an MCA
One of the biggest benefits of an MCA is that it can provide businesses with quick access to capital. Unlike traditional loans, which can take weeks or even months to be approved, MCAs can be approved in as little as 24 hours. This makes them ideal for businesses that need money quickly to cover unexpected expenses or bridge the gap between cash flow and expenses.
Another benefit of an MCA is that it doesn’t require collateral or a high credit score to qualify. This makes them accessible to businesses that may not qualify for traditional loans due to their credit score or lack of collateral.
Finally, MCAs are flexible and easy to repay. The repayment process is automated, so businesses don’t have to worry about making manual payments each month. Additionally, since the repayment amount is based on a percentage of their daily or weekly credit card sales, businesses only have to pay back what they can afford.
Drawbacks of an MCA
One of the biggest drawbacks of an MCA is that they tend to have higher interest rates than traditional loans. This means that businesses will end up paying more in interest over time than they would with a traditional loan. Additionally, some lenders may charge additional fees such as origination fees or early repayment fees.
Another potential drawback is that MCAs are not always available in all states. Some states have laws that restrict or prohibit MCAs, so businesses should check with their local laws before applying for one.
Who Should Consider an MCA?
MCAs are best suited for businesses that need quick access to capital but don’t have the credit score or collateral to qualify for a traditional loan. They are also ideal for businesses that need money to cover short-term expenses or bridge the gap between cash flow and expenses. However, businesses should be aware of the potential drawbacks before applying for an MCA.