What is the difference between a merchant cash advance and working capital loan?
I'm currently working on an article for business.com about the difference between a merchant cash advance and a working capital loan. I am looking for community members with experience, either as lenders or borrowers, to comment for potential inclusion as a source in the article.
What is the difference between an MCA and a working capital loan?
When might a business need one versus the other?
What are some pitfalls to avoid with each type of loan?
Are there alternative sources of funding businesses should consider first? Why/why not?
Where can businesses obtain an MCA or a working capital loan?
What is required from a business before receiving funding in these ways?
Feel free to respond to me directly on this thread or via private message.
My experience is that MCA are expensive, misleading and predatory. Borrowers often have to resort to taking another MCA out to pay an earlier MCA. They should be illegal. On the other hand, receiving a loc from a local bank will be straight forward, affordable, but harder to qualify for. MCAs prey on companies with poor credit scores. Factoring can be very helpful to companies that do not qualify for bank loc.
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Merchant cash advances, lines of credit and working capital loans are methods that can buoy up businesses while they await future sales. However, without a clear plan in place, these forms of financing can spell disaster for a business.
To make the most of any type of financing, have a clear road map to repayment and the ability to execute that plan successfully. Good recordkeeping and a strong understanding of your business are critical.
Accepting a loan in hopes that you might generate future sales to cover it is a major risk. When in doubt, consult an accounting professional before accepting any money from a lender of any kind. With a bit of planning, though, merchant cash advances and working capital loans could be precisely the support you need until you're back on track to profitability.
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Yes, there is no harm to choose merchant cash advance loan if you are not eligible for bank loan. However, you need to meet the eligibility criteria if you want to get merchant cash advance loan.
Most of the people apply for bank loans, but due to some issues, banks does not approve the loans. In that case, MCA loans play an important role
Merchant cash advance providers typically focus on a business’s credit card receivables. If your business meets the funder’s credit card sales requirement, you will likely qualify.