Traditional loans are not the be all end all of business financing. With funding limits, debt, and arbitrary interest rate hikes, many businesses are seeking out alternative solutions to the traditional loan model. When it comes to growth capital, merchant cash advances seem like an attractive alternative to bank loans, but there are a few things you should know before you apply for that MCA.
How MCAs Impact Businesses
Merchant cash advances, or MCAs, are offered as an alternative to traditional loans. Businesses use MCAs to roll out growth projects quickly without being limited by the red tape of traditional lending methods. MCAs do not place debt on the books and do not require any collateral. As such, MCAs have much higher interest rates and additional fees to ensure the lender makes a profit from a business that is equal to or more than the cost of a traditional loan. MCAs are also advertised as having flexible payment methods. Since there are no fixed payments, MCAs are repaid electronically from a percentage of your customers’ credit card transactions. At the end of the agreement, if the balance, interest, and fees are not repaid, businesses can expect a large balloon payment due to the lender. A merchant cash advance can have a boomerang effect that ends up placing a big strain on finances after growth is achieved, leaving businesses with very few options.
A Better Alternative for Growth Capital
When loans are not in the picture and MCAs offer more risk than return, business owners turn to accounts receivable factoring for growth capital. Factoring allows businesses to turn unpaid receivable to cash within 24 hours, instead of waiting a month or longer to customers to settle their accounts. In addition to improving cash flow, accounts receivable factoring allows businesses to quickly accumulate the capital necessary so they can act on growth opportunities. Accounts receivable factoring is debt-free, and does not have any of the additional fees and covenants of a merchant cash advance. There are no payment schedules, and businesses can choose which invoices or parts of invoices get funded. Accounts receivable factoring is used by businesses of all types as a fast, direct, affordable, and transparent method of building up capital reserves for growth.
New Century Financial specializes in accounts receivable factoring solutions for businesses. If you are trying to position your business for growth, and want a smart and viable financing solution, contact New Century Financial today.