The Difference Between a Traditional Loan and an MCA
You are one of those people who have a hobby or passion that you think you can turn into a successful business. But, you are worried about leaving your full time job and the security that a steady paycheck offers and that you may not be able to get a loan from the bank to fund the startup. If this is the case, you are probably not aware that there are other ways to fund a startup besides a bank loan; one of these is called a Merchant Cash Advance (MCA). Here are some ways that an MCA differs from a bank loan.
Interest Rates and Fees
Banks often charge not only interest on the money they lend you but they also charge some pretty high fees in any loan process; these charges can add up to a significant amount of money over time. MCA’s will only charge you one all-inclusive fee for the duration of the MCA agreement; there are no late fees, interest or any other charges during the course of the agreement.
Loans from a bank have set periods and set amounts for repayment regardless of how your business’s cash flow is going. Since repayment of MCAs is determined by the performance of your company, you pay back more when business is going good and less in the down times so it eases some of your stress during slow periods.
Merchant services require no collateral in order for you to get funding from them; you simply need to be starting the type of business that typically generates income in a timely manner once it gets going (for example: Auto Repair, Florists, Bakeries, Salons and Restaurants). Banks almost always require some type of collateral in order for you to qualify for a loan.
Do You Need a Business Plan to get It?
Banks most likely will want to see a detailed and well-drawn out business plan in order to consider lending you funding for your business startup. As was mentioned previously, this is not the case with an MCA provider because they approve funding based on the type of business that you are going into and that industry’s known ability to regularly generate revenue.
Approval and Receipt of Funds
There are many different sets of eyes in a bank that need to see your loan request before it is considered and approved. Once your bank loan is approved it may also take weeks before you get the money. When applying for an MCA you are typically approved for the funding in 48 hours or less and will have the money available for you to use in just a few days.
Qualifications are Not as Strict
Banks often have strict requirements for qualifying for a loan and they may even ask you to put up collateral that you could risk losing if your business does not go as planned. It is no secret that many people do not have high credit scores and this could greatly affect your chance of getting a loan from a bank. MCA’s require a much lower credit score in order to get approved for funding and they will never ask you to put up collateral for the loan. They know what businesses tend to be successful and generate income right away, so they feel safe when lending you the money without collateral or strict past credit history requirements.
Many times in order to qualify for a business loan you will have to round up a bunch of tax forms and other papers and then go sit down and talk to one or more bank officials about a loan. You might even have to go there more than once before the whole process is done; whereas getting an MCA is all done from the convenience of your own home over the internet. It does not involve having to drive through heavy traffic, using up expensive gas or even having to shower before you go and apply; everything is done right on your computer at home. You cannot get much more convenient than that.
Starting a new business takes a lot of time, dedication and some funding for the process too. Not many people have a ready supply of cash on hand to start a business, so many times you have to think outside the box and pursue options such as MCAs. Don’t be afraid to take a chance and start your own business with all the advantages that an MCA can offer you.