A merchant cash advance, or MCA, is a short term funding solution for merchants looking for cash to assist their business with a range of things like payroll, purchasing inventory, or additional operating expenses. It’s pivotal to note that an MCA is not a loan, it is capital funding for your business that is repaid through your daily card transaction volume.
What does this mean?
No large monthly payments, just an agreed upon percentage of your daily card sales applied toward your funding balance before you receive your deposit each day you process payments. Have a day or two where your business is closed, or are you seasonal? We only collect on days you’re open and processing!
Merchant cash advance (MCA) programs can be tricky as they offer quick access to capital with potential drawbacks. It’s important to understand their full scope, here are some pros and cons to consider when learning about MCAs:
Pros
- Quick Access to Funds: MCA programs provide fast access to cash, typically within days of application approval. This can be crucial for businesses facing urgent financial needs or opportunities.
- Flexible Repayment: Repayment is based on a percentage of daily credit card sales, so during slow periods, businesses pay less, easing cash flow strain.
- No Collateral Required: Unlike traditional loans, MCA programs typically do not require collateral. This can be advantageous for businesses without significant assets or those unwilling to risk assets
- Simple Application Process: MCA applications usually involve minimal paperwork and less stringent credit requirements compared to traditional loans, making them accessible to businesses with lower credit scores.
- Use for Various Purposes: Businesses can utilize MCA funds for various purposes, such as purchasing inventory, equipment, payroll or covering additional operational expenses.
Cons
- Costs: MCAs utilize a factor rate as opposed to an interest rate. While this factor rate is fixed, it can sometimes result in a higher repayment amount than traditional loans. Gravity Capital’s factor rates are some of the most competitive in the MCA space, talk to our team if you have any questions!
- Risk of Debt Cycle: Due to the costs and daily repayment structure, businesses may find themselves returning for MCA renewals if they rely heavily on them for ongoing funding needs.
- Limited Regulation: MCA programs are not subject to the same regulations as traditional loans. While this is improving, some states have limitations, be sure to check with your state to learn whether or not MCA funding is a viable option for your business.
Ultimately, while MCA programs offer quick access to capital with minimal requirements, businesses should carefully weigh the costs against the benefits to determine if it’s the right financing option for their needs.
How does Gravity Capital stack up?
Just like the rest of Gravity Payments, Gravity Capital is transparent. Always has been, always will be. As opposed to sending you a funding offer, we will connect with you to learn more about your businesses specific needs to then craft an offer tailored specifically to your needs.
But don’t just take our word for it, hear what our merchants have to say about their Gravity Capital experience:
- “The experience with Gravity has always felt very authentic. They want to make sure [their financing] works and that we can have longevity in our relationship.” ~Janet Cooper, Owner, Love Story by Angela’s Bridal
- “Gravity has provided me with financing three times and I have been significantly successful. We are already en route to building a second location.” ~Mr. Camarón, Owner, Paleteria la Michoacana y Taqueria Pastorcito
- “Gravity made it so easy for us. The team communicated clearly and were transparent about the total cost of our funding. Instead of lengthy applications that would take me hours to fill out with other companies, Gravity’s was short and I got a response within 24 hours.” ~Mike & Lei, Cofounders, Nana Ai Katsu
Interested in learning more about Gravity Capital and MCAs? Contact our team today!
