Better Options Than an MCA
Before taking a merchant cash advance, explore every alternative. The cost difference between an MCA and traditional financing is so dramatic that spending extra time to pursue alternatives is almost always worthwhile.
SBA Loans
SBA 7(a) loans offer rates of 6 to 10 percent with terms up to 25 years. Funding takes 30 to 90 days, slower than an MCA, but cost savings are enormous. A $100,000 SBA loan costs $6,000 to $10,000 per year in interest. The same from an MCA costs $20,000 to $50,000 over just months.
Business Lines of Credit
Flexible access to capital drawn as needed, at 8 to 25 percent interest charged only on drawn amounts. Ideal for businesses needing periodic capital infusions.
Invoice Factoring
Converts outstanding invoices from creditworthy customers into immediate cash at a 1 to 5 percent discount. Conceptually similar to MCAs but typically much cheaper because risk is tied to your customer’s creditworthiness.
Equipment Financing
Uses equipment as collateral at 5 to 20 percent rates. Specific asset collateral means no blanket lien on all business assets.
Revenue-Based Financing
Similar to MCA in structure but offered by more reputable companies at lower factor rates. Payments adjust with revenue. Still expensive compared to bank loans but significantly cheaper than typical MCAs.
Personal Loans or Home Equity
Carry personal risk but at dramatically lower rates. Evaluate carefully with an accountant and attorney.
Negotiating with Existing Creditors
If you need an MCA to pay existing creditors, consider negotiating directly with those creditors instead. Many vendors and landlords accept modified terms rather than lose a customer. This costs nothing and avoids adding expensive MCA debt.