Table of Contents

1. Alternative Lending at a Glance
2. MCA Basics: Structure, Remittance & Factor Rates
3. “OPC”: Using Other People’s Credit
4. Best-Fit Uses vs Misuses
5. Cost, Risk & Why Pricing Is Higher
6. Signals & Trends to Watch
7. Don’t Use Working Capital for Fixed Assets
8. Apply or Talk to an Underwriter
9. Helpful Resources

Alternative Lending at a Glance

“Alternative” simply means outside traditional bank credit. Products focus on cash flow, speed, and flexible documentation:

• MCA / Revenue-based advances: sell a slice of future receivables for cash now; remit daily/weekly or via a sales % holdback.
• Term loans (non-bank): fixed terms and payments, faster underwriting than banks.
• Asset-based lending (ABL) & AR financing: lines/loans secured by receivables, inventory, or equipment.
• Purchase order & supply chain finance: fund materials/production against verified orders.
• Equipment financing/leasing: match asset life with monthly payments (often more bank-friendly).

MCA Basics: Structure, Remittance & Factor Rates

An MCA is typically a purchase of future receivables at a discount (priced with a factor rate, e.g., 1.30). You receive a lump sum today and agree to remit until the specified amount is collected.

Note: Because remittances are frequent and costs are front-loaded, MCAs can feel expensive compared to loans. That’s intentional—speed, flexibility, and risk are priced in.

“OPC”: Using Other People’s Credit

Many MCA users are unbankable right now (credit thin, limited time in business, recent hiccups). MCA funders essentially lend you their credit capacity and risk appetite to monetize your future receivables—Other People’s Credit.

• Pro: Fast access to cash when banks say no.
• Con: Higher cost; daily/weekly remittances can strain cash flow.
• Rule: Treat it as a bridge or one-off—only if ROI comfortably exceeds total cost.

Best-Fit Uses vs Misuses

Cost, Risk & Why MCA Pricing Is Higher

Pricing reflects risk + speed. Funders underwrite current revenue trends, not just credit scores, and take on the risk of daily/weekly collections. From a lender’s perspective, defaults, NSFs, and stacking risk drive up costs. From a borrower’s perspective, high frequency remittances reduce cushion on slow days.

• Total Cost: Factor rate (e.g., 1.2–1.5x) plus fees; effective APR can be high due to short duration and frequent remittances.
• Behavior Risk: Stacking multiple advances compounds remittances and default risk.
• Exit Plan: Always map a refinance to term/LOC/SBA/ABL once cash flow stabilizes.

Signals & Trends to Watch

Keep an eye on small-business health indicators (e.g., credit utilization, delinquencies, days-beyond-terms, payment trends), as well as consumer demand and input costs. These influence approval odds, pricing, and the wisdom of taking short-term capital.

• Stronger revenue stability and fewer NSFs → better terms and more options.
• Tightening credit conditions → higher factor rates and stricter approvals.
• Improving payment trends → easier transitions to bank/SBA/ABL.

For ongoing macro context, track reputable small-business indices and payment-trend dashboards (e.g., credit bureau and trade-payment reports).

Don’t Use Working Capital for Fixed Assets

Working capital (daily/weekly remittances) is the wrong tool for fixed assets. Align term with asset life using equipment financing or leasing to get a predictable monthly payment and preserve cash flow.

• Equipment Leasing & Financing
• Dealer/Vendor Financing Programs

Apply or Talk to an Underwriter

We’ll benchmark MCA against alternatives (term loan, LOC, ABL/AR, equipment) and help you choose the structure that fits your cash cycle.

Helpful Resources