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There are several significant differences between a merchant cash advance (MCA) and a traditional business loan. In fact, the MCA was developed as an alternative to a traditional business loan to enable smaller merchants in industries often overlooked by banks – such as restaurants and retailers – to obtain fast access to short-term working capital. This article will analyze a few of the key distinctions between an MCA and a business loan to help you determine which is right for you.
It’s an Advance, Not a Loan
As the name implies, a merchant cash advance is, well, an advance! This means that the funder research paper assistance site (the party making the cash advance) is merely providing you today with money that they expect you will earn in the future (your “future receivables”). In exchange for advancing you cash today – let’s say $100 – the funder is purchasing a fixed amount of future receivables – let’s say $110. As your business realizes revenue, it will pay a fixed percentage of each dollar earned until the funder has been paid the entirety of the receivables it purchased.
So, How is this Different Than a Loan?
There are several differences between an MCA and a loan. Some key differences include repayment amounts and repayment terms. Loans have a fixed repayment schedule over a finite period, without any fluctuation. The repayment schedule in an MCA has the potential to be variable because of fluctuations in revenue. Payment amounts in an MCA are tied directly to your revenue. …