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MythBusters: Separating Fact from Fiction in MCA

A hand flips block letters from FAKE to FACT.

Whether you’re a funder, broker, or merchant, when navigating the world of merchant cash advance (MCA) financing, it can be difficult to separate fact from fiction.

Well, today Onyx IQ is taking on the role of mythbuster. We are going to cut through the haze of this ever-changing industry and break down some of the most common misconceptions we see–misconceptions that might be clouding your understanding of merchant cash advances. 

Below, we debunk 15 MCA myths to provide the clarity you need to step up your MCA game and achieve success in the world of alternative lending.

MCA Funder Myths

Thinking about stepping into a funding role in the MCA space? This is a great opportunity to provide crucial financial support to small businesses and make a profit. But, it will be important to get your facts straight before getting started. 

Myth #1: MCA Investments Guarantee Quick Profits

The MCA market is booming: it’s set to hit $26.3 billion by 2029, with an annual growth rate of 5.03%. Sounds like a quick-profit paradise, right? 

But not so fast.

Not all merchants seeking funding present equal opportunities; the market is competitive, and a one-size-fits-all strategy can lead to pitfalls. It’s crucial to scrutinize each deal thoroughly, understanding the unique aspects and risks involved.

To maximize the potential of your MCA deals, treat them like any serious business venture. 

This means conducting comprehensive research, devising an optimized pricing strategy, and focusing on sustainable growth rather than being enticed by the prospect of quick, easy profits. Such a meticulous approach lays the groundwork for long-term success in the dynamic MCA market.

Myth #2: All MCA Deals Are Essentially the Same

MCA deals are not one-size-fits-all. 

Different customers and sectors come with varying needs and levels of risk—and should be handled accordingly.

For example, gig workers often have inconsistent earnings, and traditional credit scores don’t generally help to measure their creditworthiness. Therefore, dealing with freelancers may be considered riskier than providing funding to other business types. 

That’s where a diversified funding portfolio comes in. Don’t put all your proverbial eggs in one basket—rather, spreading your wings across different business sectors can help minimize risk while maximizing opportunity in growing segments. 

Meanwhile, taking time to understand the dynamics of specific markets will empower you to tailor each deal accordingly. That may involve looking at alternative credit scoring to determine creditworthiness.

In other words: embrace variety, personalize your approach, and get ready for those opportunities to start rolling in. 

Myth #3: The MCA Industry Is Largely Unregulated

Unlike traditional bank loans, MCAs don’t fall under federal regulation. But don’t go thinking of the MCA industry as the Wild West—the regulatory landscape is evolving.

More and more, we’re seeing states implement their own commercial finance disclosure regulations. While the goal of these regulations is to protect small business owners, they have led to a significant amount of confusion for all MCA stakeholders (including merchants).

There are some pretty stiff penalties for non-compliance, so be sure to keep an eye on and comply with regulations as they roll out.

Myth #4: Basic Tech Gets the Job Done

No funding business can find success in 2024 with legacy technology.

Take spreadsheets for example (yes, some funders still use them).

A rudimentary spreadsheet requires manual inputs, which leads to errors, version control problems, decision-making delays, and security vulnerabilities. In other words, sticking with spreadsheets won’t just arrest your business development—it’s a recipe for disaster.

The good news is that modern lending platforms, such as Onyx IQ, help MCA funders automate tasks like document collection and underwriting, all while streamlining operations and safeguarding your data. 

Myth #5: If You Build It, Merchants Will Come

Yes, SMEs make up a whopping 99.9% of US businesses. And yes, the struggle for SMEs to secure funding from traditional banks is real. But simply building an MCA funding operation won’t magically attract merchants. 

The MCA world is a competitive one. As such, it’s not enough to just set up shop—you also need to stand out. MCA funders can do this by applying strategic marketing and customer acquisition efforts to their business growth mix. 

Develop a robust brand presence, and tailor your offerings to align with the variable revenue streams and operational needs of SME customers.

All along the way, keep your eye on the long-term—after all, if you build it and market it well, merchants will not only come, but keep returning.

MCA Broker Myths

Perhaps you’re thinking about entering the merchant cash advance industry as a broker. You want to connect small businesses with legitimate MCA funders, facilitating access to quick, flexible financing solutions.

You want the business, but you don’t want the risk. 

Makes sense, but before you take the plunge, let’s first address some popular MCA broker misconceptions. 

Myth #1: MCA Means Easy Money

MCAs may seem like a route to quick cash, but the reality is a bit more nuanced.

Yes, brokers can earn an average commission of 10%, even as much as 15%. But success in this competitive space isn’t just about sealing deals

Thriving in this industry as a broker requires more than transactional skills. You also need to be able to build relationships, earn trust, and truly grasp the technical details of MCA as a financing product.

In other words, MCA success as a broker is about far more than connecting business owners to funders—it’s about developing a holistic alternative financing skill set to build and nurture long lasting partnerships. 

Myth #2: Bigger Commissions Are Always Better

Bad-faith MCA brokers who focus solely on fat commissions tend to create detrimental “lose-lose” scenarios, positioning merchants for advances that far exceed their repayment capacities.

This can create a debt spiral, with the overleveraged business unable to meet its repayment obligations. Even worse, merchants may be forced to cease operations entirely, leaving the MCA provider with no recourse for fund recovery. 

Long-term success in the MCA broker game hinges on trust and ethical dealings. So instead of fixating on commissions (turning a blind eye to the fact that a merchant is being “stacked” into oblivion), put equal focus on creating win-win scenarios that prioritize the sustainable growth and success of all parties. 

Myth #3: The Details Are for Funders, Not Brokers

Don’t fall for the myth that details are someone else’s concern. 

As a broker, having a thorough understanding of MCA products and navigating clients through the intricacies of funding should be non-negotiable. 

That’s because brokers aren’t just middlemen—they’re also MCA subject matter experts. And that requires being upfront and transparent, offering fair terms, and clearly communicating those terms and conditions to merchants. 

Your proven commitment to a merchant’s success will foster trust—with the pay-off of increased loyalty, referrals, and repeat business.

Myth #4: The MCA Market Is Oversaturated

While the MCA market is competitive, don’t be disheartened. There are still many yet-to-be-uncovered opportunities in niche markets and underserved sectors.

Whether you zoom in on specific industries or tailor your approach to unique business needs, specialization could be your secret sauce. 

Take freelancers, for example. By 2027, over half of the U.S. workforce are predicted to make up the gig economy. This could represent a vast and continuously expanding market hungry for MCA services. 

So find your sweet spot, craft a unique value proposition, and watch as your presence in the market becomes downright indispensable. 

Myth #5: The Broker’s Job Ends Once the Deal is Funded

If you think your job as a broker wraps up once the deal is funded, think again. Your role extends far beyond the initial transaction.

Brokers are instrumental in nurturing client relationships, providing ongoing support, and managing renewals. 

Post-funding engagement is the foundation for great SME customer experience and long-term client retention. Not to mention, the more actively you stay involved, the more you strengthen your reputation as a trusted partner for your client’s future financial needs. 

In other words, MCA brokering shouldn’t just be a “set it and forget it” approach—to be successful, you need to make an enduring impact. 

MCA Merchant Myths

Now, maybe you’re a merchant. You need capital and you’ve heard of MCAs, but you’re not quite sure what to believe. 

Because MCAs have long been misunderstood, many SMEs overlook the incredible potential of this type of funding (or they have a negative perception of it).

Below, we dispel some of the misguided beliefs merchants often have surrounding MCAs—and shed light on how they can be used as strategic tools for growth and opportunity.

Myth #1: MCAs Are Only for SMEs in Financial Distress

During times of uncertainty, like the Great Recession of 2008 and the COVID-19 pandemic, MCAs have been financial lifelines for struggling SMEs. That said, SMEs shouldn’t only look at MCAs as a safety net, but also as an opportunity for growth. 

SMEs are increasingly using MCAs for proactive business moves, such as stocking up inventory, undertaking renovations, expanding product lines, renting additional locations, upgrading equipment, and hiring new staff. 

This trend reflects a strategic use of MCAs to fuel business expansion and operational enhancement, not just as a measure for financial recovery.

Myth #2: MCA Terms Exploit the Merchant

Quite the contrary. 

In fact, MCAs provide flexible repayment schedules tailored to SMEs’ ongoing cash flow situation. In many cases, merchants can select a repayment schedule that suits them, be it daily or weekly or otherwise. This is a far cry from the rigid structures of traditional loans.

While there have been instances of unethical practices among some MCA providers and brokers, these bad actors represent a minority in the industry. More importantly, the market is progressively weeding out these practices as the industry matures and prioritizes transparency and fairness. 

This shift towards more ethical operations is enhancing the reputation of revenue-based financing, making it a trusted and viable option for many SMEs seeking flexible funding solutions.

Myth #3: The Application Process Is Complex and Time-Consuming

In reality, the process is quite straightforward. 

This is thanks to the flexible nature of merchant cash advances and the growing number of funders embracing modern lending platforms. These platforms automate and expedite application, onboarding, and underwriting, empowering MCA funders to provide approval in as little as 24 hours. 

In fact, the simplicity of the MCA application process is one of its key advantages. 

Most MCA providers have designed their application procedures to be user-friendly, quick, and devoid of the extensive documentation typically associated with traditional bank loans. This approach not only reduces the hassle for merchants but also significantly speeds up the decision-making process. 

This efficiency is particularly beneficial for SMEs that require prompt financial solutions to capitalize on immediate opportunities or address urgent needs.

Myth #4: MCAs Interfere With Business Operations

Traditional loans often have strict repayment structures that put strain on a business’ financial stability. But this isn’t the case with MCAs

Merchant cash advances are designed with flexibility in mind—offering a repayment structure that aligns with your business’ cash flows. Plus, repayment is automatic, with funds debited through an Automated Clearing House (ACH). 

In other words, with MCAs merchants can continue to meet their repayment obligations without disrupting their day-to-day operations. 

Myth #5: MCAs Are Only for Short-Term Financing Needs

MCAs are often associated with bridging immediate financial gaps. However, many SMEs see them as integral to broader, longer-term financial strategies

For instance, enterprises may use MCAs as part of an ongoing annual strategy for scaling operations. Consider seasonal enterprises, like a snow removal service provider, who needs to advertise in the months leading up to winter.

Likewise, an e-commerce business may use MCAs periodically to adapt their website infrastructure, staying up-to-date with industry trends and accessibility legislation. 

The lesson here: MCAs can play a versatile role in the modern SME’s financial playbook. 

Looking to Get Into MCA? Onyx IQ Can Help

MCAs are indeed a flexible, streamlined, and easily accessible financing option that merchants can use not only in times of distress, but for anytime-anywhere strategic growth.

As such, the merchant cash advance industry is bursting with all kinds of opportunities for funders and brokers. 

Entering the MCA market brings a wealth of potential, but navigating its complexities requires insight and precision. 

Onyx IQ stands at the forefront of this dynamic industry, offering unparalleled support and tools to all MCA stakeholders. Our innovative platform is tailored to demystify the MCA process, providing comprehensive solutions that streamline operations, enhance decision-making, and foster sustainable growth. 

With Onyx IQ, you gain a partner equipped with the expertise and technology to effectively capitalize on the diverse opportunities within the MCA landscape

Book your Onyx IQ demo today to learn more.

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