If you’ve read many of the pieces on the blog lately, you’ll notice a theme here: a lot of them have to do with alternative sources of funding. But trust us, there’s a method to our madness! Many founders struggle with securing that initial funding to start their business, and that’s a barrier we’re working to reduce. So if you’re looking for funding and banks have told you “no”, find out what a merchant cash advance (MCA is and whether it could be right for you.
What is a merchant cash advance?
An MCA is an alternative to bank financing in which cash is offered in exchange for a portion of the business’ future income. It’s a system that allows small business founders to receive an advance on credit card payments-so if your business doesn’t take plastic, unfortunately you’re out of luck. An MCA is not a loan, but rather a cash advance that is repaid against future revenues of the business (plus an agreed upon interest rate that’s usually fixed).
Who is involved in a merchant cash advance?
The key parties involved in a merchant cash advance are as follows: the borrower, the provider, and the processor. Although an MCA isn’t a loan, the easiest way in which to think of the arrangement is to consider the business owner as the borrower. The provider, on the other hand, is the one offering the advance (and, of course, the one who will claim a percentage of the borrower’s future income in exchange). Continue Reading