A Comprehensive Guide to Understanding What Is an MCA in Business in 2023

What is an MCA in business? 

A Merchant Cash Advance (MCA) is a type of funding option for businesses that allows them to receive a lump sum of capital in exchange for a percentage of their future credit or debit card sales [3].

It is a sales agreement in which the business (the seller) sells a portion of its future revenue to the MCA company (the buyer) at a discounted price [2].

MCAs are considered as a short-term financing solution, as the business pays back the funding incrementally through the deduction of a percentage of their daily or weekly credit or debit card sales.

Business funding is a crucial factor for success and about 80% of businesses rely on some form of credit [1].

Merchant cash advances have become a popular alternative to traditional loans, as they are not covered by the usury laws that govern loans, and this is where they have gained a somewhat dubious reputation [2].

In this blog, we will explore the concept of Merchant Cash Advances, discussing its benefits, drawbacks, and how it can be an effective financing solution for businesses in need of quick and flexible funding

What Is an MCA in Business?

A Merchant Cash Advance (MCA) may be a suitable option for small businesses that need extra money to improve their competitiveness and overall functionality [1].

MCAs are ideal for businesses that need capital to cover cash-flow shortages or short-term expenses [2].

MCAs are not considered a traditional business loan, as it is actually a sale of the business’s future debit and credit card transactions at a discount [3].

Repayment for an MCA is typically taken automatically from the business’s payment processor on a daily or weekly basis [3].

MCA Cost

Here are some points regarding MCA fees and cost:

• The cost of an MCA can be estimated using an MCA calculator. [1]
• Merchant Mavericks Merchant Cash Advance Calculator can be used to estimate daily repayments, cents on the dollar costs (the amount you pay in fees per dollar borrowed), rough APR, and approximate days to repay. [2]
• The cost of an MCA can be determined by the daily payments, which can be estimated using an MCA calculator. [3]
• The total cost of an MCA can also be determined by considering the annual percentage rate (APR). In some cases, even though the daily payments might seem reasonable, the total cost of an MCA can be high when considering the APR. [3]

Benefits of Taking a Merchant Cash Advance

Here are the benefits of taking a merchant cash advance in bullet points:

• Quick and easy application process: Merchant cash advances typically have a shorter and simpler application process compared to traditional business loans, making it easier for business owners to access funding quickly.
• No collateral required: Unlike traditional business loans, merchant cash advances do not require any collateral, making it a good option for business owners who do not want to put their assets at risk.
• Flexible repayment terms: Merchant cash advances are typically repaid through a percentage of daily credit card sales, which allows for more flexible repayment terms and eliminates the need for fixed monthly payments.
• Good for businesses with poor credit: Merchant cash advances do not have a strict credit score requirement, making it a good option for businesses with poor credit.
• Funds available quickly: Merchant cash advances can provide business owners with access to funds in as little as a few days, making it a good option for businesses with immediate funding needs.
• No restrictions on how funds can be used: Unlike traditional business loans, merchant cash advances do not have any restrictions on how the funds can be used, allowing business owners to use the funds for any purpose.