A merchant cash advance (MCA) can seem like a good idea if you own a small business and are looking for alternative ways to raise money besides a traditional bank loan or SBA loan. But what seems promising on the surface can turn into a nightmare, especially if the terms of your MCA turn out to be too burdensome and you go into default. Then you could be at risk of losing your equipment or other assets and sinking the company.
If you are rethinking an MCA, here are a couple of other forms of alternative financing to think about.
Direct private lenders: a straightforward approach
One possibility is to find an angel investor. These private lenders use their own money to offer you a loan. A direct private loan from a private investor usually has fewer restrictions and more flexibility than a traditional loan. However, the investor may demand a faster return on their investment than you might be comfortable with.
Connecting with private lenders can be done through an attorney or online platforms designed for angel investors. These investors are out there, looking for promising businesses to fund.
Crowdfunding: the people’s power
Crowdfunding platforms like Kickstarter and Indiegogo are lifelines for many new and smaller businesses. These platforms let you collect donations from individual donors, and you have several options to choose from:
- Donation: Donors give money without expecting anything in return.
- Equity: Donors receive shares of your company in exchange for their contributions. They become part-owners.
- Reward: Donors get a product or service in return for their financial offering. It is a win-win situation.
- Debt: Donors lend you money that you repay with interest. However, some platforms offer interest-free loans.
Most businesses opt for reward- or equity-based crowdfunding. The SEC allows you to raise up to $5 million annually via Regulation Crowdfunding. Remember, most crowdfunding platforms will not pay out if you do not meet your fundraising goal. But with the right campaign, you can pull in significant funds without the backbreaking repayments of an MCA.
Microloans
Entrepreuners who lack the credit history to qualify for a traditional loan might get approved for a microloan, which is a smaller business loan, often topping out at $50,000. Besides being easier to get approved for, microloans often come with reasonable interest rates, though frequently higher than a regular loan.
Take action now
It might be too late to avoid getting caught up in an MCA, but it is not necessarily too late to take legal action to fight for your business. Contacting a lawyer who represents business owners against MCA providers can make a world of difference.