MCAs vs. Bank Loans: Which Are Right For Your Business?

Each business is unique. That’s why it’s important to consider every option carefully and consider the specifics of your business when making decisions that could impact the future health of the business. This is especially true for financial matters such as loans. More and more often, business owners have been ditching the old traditional loans to pursue MCAs (Merchant Cash Advances). However, is this really the right move for your business? Taking a look at the pros and cons of each and becoming familiar with them can help you make this decision in an informed manner, and ensure that it’s the best for your business.

Should You Choose MCAs for Your Business?

MCAs are a sort of loan, though they are not taken out through a bank. You would take out a loan through the merchant who processes debit and credit card payments in the business. You’d receive the agreed-upon amount of cash quickly and access it when needed. To repay, the company simply withholds a certain percentage of all the day’s sales with are completed with debit or credit card purchases. This is a great option because it does not really impact the cash flow of the business, offers a quick access to cash and does not require collateral. However, the rates are oftentimes decided by private companies and can vary wildly. These types of loans also have the potential to be much more expensive in the long run than traditional loans.

Or Bank Loans for Your Business?

Most people are already familiar with this type of loan. A sum of money is borrowed from a bank and repaid in monthly installments. This is a predictable method which has stuck around to help businesses of all shapes and sizes for many years. These usually allow longer repayment periods than MCAs, ranging up to five years on average. Furthermore, these loans are usually overseen by the Small Business Administration, which helps to make sure that interest rates are fair and manageable, and overall the monthly repayments tend to be cheaper in the long run than the daily withholding method in the previous option. There are downsides, though. First, it can sometimes be difficult for a small business to get a bank loan, and the process can be very expensive, required collateral. This collateral cannot be sold or disposed of until the loan is paid, leaving the owner’s hands tied if they wish to upgrade equipment or anything of the sort.

Knowing the facts of both of these types of loans can help decide which is best for your business. Be sure to consider all the benefits and shortcomings of each option before making a final decision.

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