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Unsecured loans- merchant cash advances- are they better alternatives to conventional business loans?

Merchant cash advances and the merchant solutions industry has grown a great deal. They are now chosen as easier alternatives to conventional business loans.

Understanding merchant cash advances:

If we say merchant accounts and merchant cash advances are for those businesses that involve credit card transactions, then we would be covering almost all the businesses. This is the real scenario today. Businesses big and small find it easy to handle finances and accept payments through credit cards. This is why almost every business opens a merchant account.

If you are in a situation where getting a traditional business is near to impossible, then merchant cash advance is what you need. Unlike a usual loan, this type of funding allows you to accept an advance depending on the future credit card transactions of your business. When you apply for a merchant cash advance, the amount that you apply for would be credited in your account. Though it’s true that MCAs might come with slightly higher rates than conventional loans or bank loans, these are easier to get.

Are these unsecured loans better alternatives to the traditional business loans?

Loans from banks are becoming tougher to obtain. Bigger banks and reliable lenders are now framing stringent policies to adhere to while applying for loans. Compliance to the terms also becomes difficult for smaller businesses, those with High NSF (Not Sufficient Funds), bad credits and high risk businesses. This is why BCA (Business Cash Advance) delivered by merchant solutions providers are gaining steady popularity in today’s market.

The merchant cash advances are unsecured loans. So, you would not need large collateral to get your funds. But with bank loans having collateral is significant. And if your business happens to be in high-risk category, you would need larger collateral to get the loan approved.

Business loans vs. unsecure loans or MCAs:

If your business is eligible for a bank loan should you still go for a merchant cash advance? The answer depends on the reason for which you require the funds and the amount you require. With conventional loans, there might be restriction on the loan amount. You would also have to clearly cite the purpose for which you need the loan. For smaller funds like for stocking up on the inventory and more, you would find merchant cash advance easier than a loan.

  • With conventional bank loans, you would be defining the amount you require. You would then receive a loan and then you would repay the bank or the lender in periodic installments, ideally monthly installments. In merchant cash advance, your merchant provider would deduct some amount every day from the credit card sales.

  • MCAs don’t come with fixed maturity dates as business loans

  • No matter how much you earn, no matter how your business runs you would still have to pay the installments when you choose a bank business loan. But with MCAs, you would only be paying a portion of what you earn. And MCAs also might not appear in your credit reports. But banks loans do! This would also impact your credit score.

  • The approval rate for MCAs is higher than that for business loans. The overall processing time is also much shorter for merchant cash advance.

  • MCAs are easier for those small businesses that are looking for small funds to help expand their businesses without having to undergo lengthy loan processing or having to wait to get an approval.

  • Bank business loans would not be available if you have a bad credit history. But with MCAs, the focus is on your future revenue and a preset amount would be agreed upon to be paid in total. So you would be paying this in parts according to the amount earned through credit card sales each day.

Not all unsecured loans are as great as MCAs:

There are unsecured loans that come with payment terms and liabilities much similar to the conventional business loans. This would mean that you would not be able to avail these if you have a bad financial record or a poor credit score. This would also mean that they take longer to process. So merchant cash advance comes as an unsecured loan alternative in these cases.

1st Position, 2nd Position, 3rd Position, 4th and 5th Position all have different policies to comply with while applying for a loan. MCA providers mostly consider all these positions uniformly and grant a loan based on the expected credit card transactions in the future.

Merchant cash advance benefits:

  • Choosing merchant cash advance as an alternative comes with a numerous benefits.

  • Businesses would not be subjected to stringent credit checks and credit score evaluations

  • The advance received could be used for any purpose in the business including purchase of equipment, employee salaries, inventory planning, real estate, marketing and more. Traditional loans might have certain restrictions on the purpose for which the loan is used.


Citi Wide Merchant Funding

300 Carnegie Center
Princeton, NJ 08540

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