Even though alternative modes of funding have flooded the market, businesses are still opting for credit cash advances. Since, funds are always needed by business owners, it’s time that you mention the differences between a credit card cash advance and a MCA when you market your loan to UCC leads.
During lean times, one of the biggest decisions business owners need to make is where to get additional capital from and how to obtain it.
Though the economy has recovered greatly, still many companies face the effects of the great recession of 2008. Hundreds of companies had to liquidate their assets to pay off their loans, and it still hurts the financial status of these companies.
As a result of these circumstances, many businesses with a weak credit rating have to resort to alternative options for obtaining quick working capital during hard times. One of those options is a credit card cash advance. These advances do provide quick, working capital which can be helpful in dealing with short-term debts, but the fees of these advances alone are high enough to cause the borrower to extend the term of his debt even longer. In some cases, it may extend beyond the actual time of the cash advance.
The good news here is that business owners, both small and large, are capable of obtaining loans at a low cost by using an alternative method, irrespective of how their credit rating is. One such proven alternate financing option is a Merchant Cash Advance.
Why Avoid Credit Card Cash Advances?
Though a credit card cash advance provides you with easy access to capital, there are a number of pitfalls with this system. Firstly, the APR is 10 to 15% higher on cash advances than regular purchases.
Besides this, there is a fee of 1 to 4% charged on the cash advance amount. Each withdrawal is followed by the calculation of an interest rate on the credit card advance. Plus, the interest rate is compounded on a daily basis. For any business owner, this may not be a smart business option.
Advantages of an MCA
Unlike traditional financing techniques, a MCA does not require you to pay a lump sum in one payment or pay it off in monthly installments. Instead, the amount is deducted from the daily credit card sales incurred by the company. If the financial statements of the company are in good condition, then the deduction of the amount will hardly be noticed. This is because a small percentage of your sales will be deducted on a daily basis, and as a result, the overall impact of it reduces the monthly cash flow statement.
For a business with a poor credit rating, it becomes difficult to procure a loan. But, there is no such problem with a MCA. A company with a bad credit rating can also get an advance; the amount will be determined by your daily sales. Another advantage is that the funds are received within a couple of days of approval, unlike traditional financing techniques which take weeks or months to process.
Here are some more advantages to look into while opting for a MCA:
1. A MCA does not require you to keep any security, so if you have limited assets that you cannot lose, a MCA is very beneficial for you.
2. The loan calculator available on this website will help you to calculate the advance amount, the term, and the fees.
3. Once the funds are in your hand, then how to use it is your choice. The company imposes no restrictions whatsoever on the usage of the advance. So, if you want to update your software, then it is completely up to you how you use the extra funds.
4. The fund transfer is quick and the transfer takes place as soon as the application is approved.
5. The amount is deducted every day automatically from your account, and you will not have to mail a check every month.
6. No upfront costs are involved, unlike traditional financing, where you need to pay additional fees and an underwriting fee.
SEE ALSO: Learn Why a Merchant Cash Advance Loan Has a Better Chance of Converting UCC Leads than the Traditional Bank Loan
For any business needing funds, transparency is very important, and you can offer that in the case of a MCA. The company does not need to hide its costs, there are no hidden fees involved, and the best thing to consider is that it is not a loan.