What are Capital Advances?
While a business loan can provide you with the funding you need, the process of securing a loan can be complex. Why not consider a capital advance instead?
A capital advance doesn’t work the same way as a traditional loan. Learning more about the pros and cons of a capital advance can help you make a well-informed decision about your business financing.
How a Capital Advance Works
A merchant capital advance (MCA) is a financial agreement between your business and a third party. The third party will purchase a portion of your company’s future sales. As the business owner, you’ll gain immediate access to capital that you can use to cover your operating costs or seize an opportunity for a growth project.
You’ll repay the capital advance from your future sales. The size of the advance depends on your historic business volume and/or your expected future sales.
Capital Advance vs. Loan
An MCA is different from a loan in a few key ways. For example, a traditional loan typically requires collateral and a credit check. Working capital loans, in particular, can require high credit scores, a longer business history, and a compelling business plan.
A capital advance is much simpler, however, as it’s tied to your projected revenue. This means that you can secure a cash advance without a credit check, collateral, or a lengthy approval process.
Advantages of a Capital Advance Over Traditional Loan
Why might you consider an MCA over a traditional loan? Here are just some of the benefits of a capital advance.
Fast Access to Cash
Without the complex application process of traditional loans, a capital advance can give you fast access to cash. An immediate boost to your cash flow will ensure that you have the money you need to cover your day-to-day expenses, but it can also provide an influx of working capital to invest in a business expansion project.
No Credit Check
Unlike working capital loans, a capital advance doesn’t require a credit check. This can be ideal for newer businesses, since building a business credit score can take months or even a year.
A capital advance can allow a business owner to gain access to funding regardless of their credit history, and the lack of a credit check can make the process that much faster.
No Collateral
When you apply for a traditional loan, your lender may request that you put up your business assets as a form of collateral. This means that if you fail to repay the loan, you could jeopardize your company’s property. A capital advance requires no collateral, which poses less risk to your business than other lending options.
No Impact on Credit Score
Traditional loans will have a direct impact on your business credit score. A capital advance isn’t classified as a loan, so it won’t affect your credit. The downside is that you can’t use a capital advance to build your credit, but at least this way, you won’t see a hit to your company’s credit history if you miss any payments.
Is an MCA Right for My Business?
Every business owner will have to compare the pros and cons of capital advances against traditional lending options for their own needs. But for many entrepreneurs, the speed and relative ease of an MCA makes them a great choice for fast, reliable cash.
Paired with other options like Simpay Select Plus, a dual payment/surcharging system designed to mitigate credit card fees, an MCA can be a strategic option for modern businesses.
