Are Working Capital Loans Better Than Merchant Cash Advances?

MCA prices can be tricky to calculate since interest rates and annual percentage rates (APRs) aren't used. In terms of APR, the cost is often much higher than for other types of business financing.

There are also some key drawbacks:

• Limited Amounts: A merchant cash advance is based solely on debit and credit card transactions. If you make $500,000.00 in gross revenue, but only $100,000 is card sales, you will be limited in the amount of funding for your business.
• Cash Flow Issues: In addition, a merchant cash advance is paid out based on a percentage of sales that occurs on a specific day. Because of this, it is difficult to estimate exactly how long you will need to repay the loan. A major concern of doing an MCA is that part of your future sales will go to repaying the advance and costs associated with it. You could end up in deeper debt and have to borrow again if you run into cash flow problems.
• Lack of Control: The merchant cash advance lender may require you to switch credit card processors, giving them greater control over your account. Your merchant processing account will be linked to the advance so that payments come out of sales. Even if you don't like the fees and services, you may have to wait until the balance is paid off before changing.

A working capital loan does not have any of these limitations.

Working capital loans are short-term loans used solely for the cash flow of the business and are great for covering your operating costs, like office rentals and salaries. Short-term loans can provide you with cash to address financial needs. Whenever you are facing a financial crunch and you wish to stabilize your cash flow with an extra boost, this is the best option. 

• No Collateral: The best part is that working capital loans typically require little or no collateral and are far less risky for your business than conventional loans.
• Early Repayment: Short-term working capital loans usually have early repayment options because they are designed for short-term use. There's no problem with paying off the loan earlier than you originally agreed to. It's actually better that way - both for your business and for your credit score.
• No Restrictions: There's no restriction on how you spend the money. Most lenders won't put limits on how you use the money; they just want you to stay in business.

If your company needs short-term financing, reach out to our dedicated financial specialists. We can help you determine the right solution and connect with the right lenders and finance companies. Contact us to get started.