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If your business relies on credit and debit transactions for a lot of its income, you probably already know you can finance your merchant account income to access a cash advance when you need working capital. The big question is, how is that more useful than a traditional business loan, and under what circumstances does the MCA work better than business loans?

1. MCA Payments Flex With Your Income

Business loans generally come in one of two formats. Either the loan amortizes over its repayment term or there are interest-only payments with a principal payoff at the end of the term. Some banks and other lenders create niche loans beyond these formats, but most loans fit one or the other. The only way those loans have variable payments would be if the interest rate fluctuates. By contrast, a merchant cash advance payment agreement sets the payment at a percentage of your income, so if you make more money, you repay the advance faster.

2. Approvals Take a Fraction of the Time

Banks tend to make business loan approval a lengthy process because they weigh a lot of factors. It makes sense when you consider most bank loans are designed to be repaid over the course of years. In the case of some asset purchase loans, it could even be a decades-long debt, lenders naturally want to take care of. Since the merchant cash advance is designed to be repaid in just a few months, the risks to the lender and the timeline for approval are much shorter. Many businesses see the cash in as little as five business days from the date of application.

3. MCA Limits Grow With Your Income

Most business loans are tied to the value of an asset, which is how their interest rates are controlled. Short-term financing like your MCA gets based on your income, so as long as you can afford to repay the advance, you are likely to get what you need when you apply. That also means when your business grows, the size of the cash advance you can access grows too. For that reason, many retail businesses use a merchant cash advance to finance seasonal remodeling and inventory restocking processes a couple of times a year.

When Is the MCA More Efficient Than a Loan?

If you foresee an upturn in your company’s regular demand cycle or you need cash quickly to deal with a short-term emergency when you are busy, then the MCA is going to work better than a loan. Not only will you get approved faster, but paying the advance down quickly minimizes the finance charges.