3 Alternatives To MCA Loans

Many businesses turn to Merchant Cash Advances as an alternative to traditional financing due to the fast turnaround time for approval. In most cases, businesses are in need of a quick solution to their cash flow problems so they overlook the stipulations. What they don’t realize, is that the fees applied by MCA’s are far greater than those from other traditional products.

A Merchant Cash Advance is an advance given to a business for a specific amount. MCA’s differ from traditional lending products so they are governed by different regulations that don’t need to consider creditworthiness as an approval factor. MCA’s only work with businesses that utilize card terminals to receive payments from customers. They use the volume of debit/credit card sales, profit margins, and business turnover as factors for approval as opposed to creditworthiness. They then use these factors to determine the lending risk as the amount lent gets based on the future sales projections of the borrower. Unlike traditional loans, MCA’s don’t charge interest rates or APRs that gets applied to the principal balance. Instead, the amount paid to the lender is based on a common factor rate. This rate can fall anywhere between 1.2 and 1.5 on average. This factor rate gets applied to the amount lent to the borrower. For example, if you borrow $25,000 and are given a factor rate of 1.4, then the amount you’ll have to pay back is $35,000. That means you’ll end up paying back $10,000 at the end of your term. In regards to short-term lending, this can be very expensive.

Although MCA’s have the advantage of being flexible, fast, and less demanding, there are other alternatives.

Short Term Business Loans

On average, repayment periods for Short Term Business Loans can range anywhere from 1 to 5 years. Previously, short-term business loans were not a popular option for businesses looking for quick cash. Now, digital lending software has made it easier for lenders to review applications and disburse funds quickly. The benefit of short-term business loans is they have fixed APRs, consistent payments, and feasible repayment periods.  With the advancement of online services, applications and document submissions can be completed quickly and conveniently.

Business Line of Credit

A more popular alternative, Business Lines of Credit appeal to businesses because provide more flexibility. A business line of credit has a maximum amount that can be drawn from. The benefit of the line of credit is the borrower only pays for the amount that gets drawn from the credit. For example, if you have a line of credit of $10,000 and you draw $6,000 from it, you only pay back the $6,000 while still maintaining access to the remaining $4,000 available if needed. Businesses in need of quick access to funds can do so immediately by simply transferring or withdrawing the money. This can be beneficial for businesses in need of immediate financing. APRs for lines of credit are typically variable but payments can be scheduled monthly and are based on the amount owed. Many businesses will borrow from lines of credit to access working capital, maintain their monthly payments, and simply pay off the amount owed when they have a surplus of cash flow.

Equipment Loans

For businesses in need of funds to purchase equipment, Equipment Loans are a perfect financing solution. Vehicles, machines, and computers have significant value and can act as collateral for the loan itself. Lenders factor in the value of the equipment and the depreciation to cover the loan. Equipment loans cover the risk for the lender as they can simply repossess the equipment in the case of failure to repay.  Due to the minimized risk, small business owners can sometimes borrow equipment loans at 100% of the cost of the equipment from the lender at a reasonable rate. These loans can also include fixed APRs, consistent payments, and feasible repayment periods. 


For many businesses, MCA’s are still the go-to option for lending. But considering the alternatives mentioned above, there are lending options that offer just as much flexibility and convenience. If you are a business considering options, be sure to factor in the pros and cons so you can make a financial decision that’s best for you. 


The Benefits Of Consolidating Your Debt

Businesses commonly use loans to help them with operations, growth, and goals. Whether that be to purchase more inventory, invest in equipment, or acquire assets, loans are a necessary tool. Lending opportunities can prove to be beneficial but steady cash flow is necessary to help manage these debts. Businesses commonly find themselves facing unexpected obstacles such as inflation, rising wages, and changes in operating costs. When these factors affect the stream of cash flow, those debts begin to become hard to manage which can result in more debts to continue operating. Multiple debts can be difficult for businesses to manage due to different interest rates, due dates, and payment amounts.

Debt consolidation is often seen as a solution to these difficulties as it can help businesses get back on track. Debt consolidation loans are types of loans that business owners can use to pay off existing debts. This allows business owners to combine all of their existing debts into one lump sum resulting in one interest rate and one payment as opposed to managing multiple. Debt consolidation loans are common and are available for businesses of all sizes and structures.

Here are the 4 benefits of consolidating your debts:

1. Manageable Payments

Managing multiple payments can be difficult as the payment amounts, interest rates, and due dates can be all different. Designating someone to manage these tasks can also become a full-time responsibility. Cash flow can become an issue for managing different payments schedules due to the fluctuations businesses commonly deal with. By having only one loan and one payment, overseeing debt can become more manageable and allow cash flow to be less strenuous by making late payments less likely. 

2. Better Interest Rates

Having multiple loans with different interest rates can result in additional costs. Loans with higher interest rates can result in larger payment amounts and higher principal balances. By paying on loans with different rates, managing your debt balances can become difficult. By consolidating debts into a loan with a better interest rate, you can benefit from lower payments. You can also save money in the long run by paying less interest over the amount borrowed after the loan is paid off

3. Consistent Cash Flow

Cash flow is important for businesses to have access to. It helps maintain business operations by keeping cash on hand to pay for operating expenses, payroll, supplies, and debts. However, managing multiple loan payments can make managing cash flow difficult because it creates more tasks for bookkeeping. Consolidating multiple debts into one loan payment can help reduce cash outflow because you’re managing one scheduled payment based on one amount. This keeps more money in your business which allows you to focus on the other expenses mentioned that require cash flow as well. Consistent cash flow also creates more growth opportunities as liquid assets can be allocated towards other needs of the business.

4. Improved Credit

Consistent payment history is an important factor in regard to credit scores. Late payments and missed payments can result in severe penalties. Having multiple loans can make it difficult to stay consistent but managing a single loan can help you focus on managing your payments and building your history. As a result, your credit score can greatly improve which can benefit you in the long run if you need to apply for another loan in the future. An improved credit score can help improve your odds for future loan inquiries and attain lower interest rates.

If you find yourself feeling overwhelmed from having to manage multiple payments, consider business debt consolidation. It can be beneficial for your business by combining all of your debts into one loan. You can enjoy the peace of mind of having lower interest rates, consistent cash flow, and simplified payments. 

Wing Lake Solutions takes pride in assisting businesses currently dealing with debt issues by providing options. Our unique approach can help you take back control of your business and drive your own success.

For more information contact us at: (248) 243-4350


How to Apply for a Business Loan: A Documentation Checklist

If you’re looking to apply for a small-business loan, it is recommended to do your research in order to find the option that’s best for you. The process to get a business loan can be lengthy, especially loans backed by the Small Business Administration. Decisions should not be rushed and you should thoroughly understand all of the options available. Business loans have requirements that consist of providing multiple documents. In many cases, applicants are caught off guard by the requirements and delay their application further by taking time to gather the information required. Therefore, it is important to have the required documents ready before you approach a lender so you avoid any last-minute delays. By knowing what to expect, you can apply for the lending product that’s right for your business, be prepared for the process and avoid wasting time. 

Here are four steps to help you prepare for applying.

1. Credit Score

As with most lending products, lenders use the personal credit scores of the applicants. Given that the proceeds of the loan are for the business, lenders also take into consideration the business credit scores of the business. In order to determine the lending risk, lenders require great credit scores as a factor for their decisions. For lenders, the lower the credit score, the higher the risk. The higher the credit score, the lower the risk. Typically, great personal credit scores are considered above 750 and great business credit scores are considered above 80. Although credit scores play a role in the final decision, they are not always a determining factor. Some lenders will still consider applicants with lower scores.

2. Proof of Revenue

Another important lending factor is proof of revenue. Lenders will ask to see documents confirming gross profit,  net profit, operating costs, sales, and cash flow to get a clear picture of the revenue of the business. Lenders may ask to see financial statements, tax documents, and bank statements from current and previous years in order to get a clear picture of the revenue trends in your business. They also look at metrics such as the current ratio which measures your assets divided by liabilities to determine your company’s ability to repay. The priority for the lender is the applicant’s ability to repay. So the determining factor is based more on growth in cash flow, consistency in revenue, and having manageable debts.

3. Business Plan

Many lenders will require a recent copy of your business plan to get a better idea of your company’s goals. Lenders want to know where the proceeds of the loan will go to determine the risk involved. They’ll look at forecasts for stability, growth, and market share. They’ll also take into consideration the experience of company leaders and how they may influence the direction of the company. In many cases, they’ll also want to see a written plan for repayment along with an estimated timeframe. 

4. Collateral

As a way to minimize risk, many lenders will ask for collateral to secure the amount of the loan in the case of failure to repay. Company assets such as equipment, real estate, and even accounts receivable can be used. Lenders take into consideration the value of these assets vs the amount of the loan to assure that in the case of a loan default, they can sell those assets to cover the amount owed. Some lenders may require companies to provide a personal guarantee to their loan. In other cases, lenders may even ask business owners to pledge their personal assets as collateral. 

Every lending source wants to reduce their risk when making a loan. One of the ways they do this is by getting additional financial collateral that secures the loan in case your business fails to meet its repayments. This is usually done in the form of a company’s accounts receivable, equipment or any other easy-to-sell assets.

One of the additional qualifications for a business loan may be for the company’s owner to provide a personal guarantee to their loan, or pledge additional collateral such as personal real estate or other financial resources.

Credit scores, annual revenue, business plan and collateral are the four cornerstones of most business loan applications. But note that there are many other supporting documents you’ll need to qualify for a business loan. They can include:

  • your driver’s license
  • any commercial leases
  • business licenses
  • personal and business tax returns
  • business insurance plans
  • payroll records
  • incorporation documents
  • other affiliated corporate ownership or
  • current added financial obligations.

Although credit scores, proof of revenue, business plans, and collateral are common requirements for business loan applications, lenders will require other documentation. Some examples of these required documents are proof of identification, social security number, EIN number, business license, incorporation documents, corporate ownership certificates, and/or fictitious business name statements.

The application process for a business loan can be strenuous and lengthy. Due to the policies of lenders, they may require many documents to get a clear picture of your personal and business financial history. Being prepared for what to expect will help you avoid the stress of last-minute delays by having the required documents in hand.