Merchant cash advance (MCA) is an easy and convenient means of small-dollar funding for small businesses. They come with several advantages and disadvantages, as mentioned below.

Benefits of merchant cash advances

• Merchant cash advances are quick and easy to obtain. In most cases, the money is deposited into the borrower’s account within a week and without requiring extensive paperwork. MCA providers just look at a business’ credit card receipts to assess if they can repay the advance.

Disadvantages of merchant cash advances

• Your annual percentage rate (APR) of the fees, as well as interest, could run into three digit numbers, ranging from 40% to 350%. Turning out to be a lot for expensive than the APRs on traditional bank loans, which are usually 10% or less.
• The ease of availability of merchant cash advances can throw small businesses into the vicious cycle of debt. This is especially true for borrowers who have a bad credit score and don’t have any other means of financing. Borrowers may be forced to take another cash advance immediately after taking the first one because of high costs and the regular MCA repayments. Thereby, immensely affecting the cash flow of a small business.
• Since merchant cash advances are organized as commercial transactions as opposed to loans, they are not governed by federal regulations. They are regulated by the Uniform Commercial Code in every state and not the banking laws.