Getting an Unsecured Business Loan When Your Company Has Bad Credit


MCAs, or merchant cash advances, are funding options that tend to be very available for small business owners with checkered credit histories, since your annual revenue matters much more than a credit score.

In an MCA, the funding provider purchases a percentage of a company’s future credit and debit card sales. The application process is simple: advance providers look at your company’s revenue over the previous months and determine the size of your cash advance through that data. That advance is paid as a lump sum.

MCAs are paid back by providers taking a certain percentage of each and every card-based transaction, typically about 10%. They’re quick – often paid within a single business day – and are offered largely through online alternative lenders.

MCAs make money by using what’s called a factor rate instead of traditional interest. The factor rate is multiplied by the size of the advance, and this product is the total amount that the business must repay. Factor rates are typically between 1.0 and 2.0. If you receive an MCA of $12,000 at a factor rate of 1.13, you’ll need to repay 12,000 x 1.13, or 13,560.

MCAs have advantages and drawbacks. They’re fast, available for businesses with bad credit and no assets suitable as collateral, and they can be spent on any business need you can think of. However, the fixed repayment amount means that the effective APR of an MCA can reach the triple digits. You don’t want to have too many repeated MCAs in your business plan, as the repayment structure can create a crunch in your cash flow.

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