September 12, 2021

How to choose the best merchant cash advance provider


In the business world, cash is still king. Businesses need it more than ever to scale, expand, and change the world for the better.

Like any smart entrepreneur, you’re likely aware of all of your funding options. By now, surely you’ve come across merchant cash advances—a flexible form of funding often given as a business credit card. Unlocking a merchant cash advance (MCA) can help you scale your business faster than if you were to pursue other, more grassroots, growth methods.

MCAs can be used for:

  • Advertising
  • Inventory
  • Research and development (R&D)
  • Headcount (like hiring a contractor to run paid ads for you)

Unlike business loans, MCAs don't require forfeiting equity in your business, signing a personal guarantee, or waiting on a costly credit check. In the financial world, loans are seen as riskier for a business owner. When you go to the bank for a loan, they don't look at the profitability of your company. 

Despite being a newer form of financing, legal issues within alternative finance have already begun to surface. So, how do you know you can trust one lender over another?

Let's take a look at how to compare lenders to avoid hidden fees and legal issues when choosing a provider.

What are MCA providers exactly? 

MCA providers are companies that give you money to spur your business’ growth. Unlike banks, MCA lenders use financial technology to make funding decisions. In most cases, they work directly with a payment processor like Stripe to oversee how much money is flowing in and out of your business account. Rather than using a credit check, MCA providers make funding decisions based on your projected revenue forecasts, which is a much better indicator of future success.  

How MCA providers are repaid 

MCA providers give you advance capital to invest in your business. In short, they are purchasing your future profits today. Every time you use your MCA-issued credit card, an interchange fee, or “swipe fee”, is charged. An interchange fee is similar to a processing fee when you swipe or tap your personal credit or debit card.

MCA providers pay off your advance by taking a percentage of your sales to pay back the original funds given. The more profit your company makes, the faster you repay your MCA provider. How frequently repayments occur will rely upon your agreement terms.

Paying an interest rate vs. a percentage of your sales

Interest rates are a percentage of the overall amount you owe. Think about your cell phone bill: if you forget to pay it one month, the next month you will be charged last month's owings, plus the next month’s, as well as a percentage on the total amount owing.

So your phone bill would look like:

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