Managing Director, BRP Onesta – 21st Century Perspectives

Be Careful – It’s Not a Loan!

Several times a year we survey small business owners regarding their practices and needs and from what we learn we shape areas of our company. One thing we learned has implications for small business owners.

By Thomas W. Tramaglini, Managing Director at BRP Onesta

BRP Onesta is a company that supports small businesses in a host of areas. One of the areas we help our clients with is commercial loan origination. Our platform has over 50 different types of products that small businesses can take advantage of to support their operations and growth.

However, in our latest survey we learned that the majority of small business owners who have taken a Merchant Cash Advance (MCA) believe that they secured a loan. In our 2021 survey, we found the majority of small business owners (68.1%) believing that that MCAs were loans.

The majority of small business owners believe that Merchant Cash Advances are loans but they are not.

Merchant Cash Advances are not loans – Merchant Cash Advances (MCAs) are advances of future receivables which are paid back over a short amount of time. MCAs are not classified as loans so these advances skirt most of the regulation which the banking and lending industry require.

NAV defines MCAs as: “A merchant cash advance is not a business loan but should be considered a cash advance based on the volume of your credit card receipts. The funding provider gets paid back by taking a portion of your future credit card sales each day. You can usually get approved in a day or two—with very little paperwork. But you’ll likely pay for this convenience in higher interest rates.”

Why MCA?

Loans take time and are in many cases not east to get – One of our best loan products are business loans that are guaranteed by the Small Business Administration (SBA) and on average fund in 90 days from start to finish. Sometimes, they take much longer but rarely do they take fewer than 90 days to get done.

Some of our equipment loans, small business loans (not SBA) can take a few days to fund but generally speaking, Merchant Cash Advances can be funded in as little as 2 hours with minimal underwriting. The following can also be true with regards to MCAs:

  • Fast funding
  • Minimal underwriting
  • No Personal Guarantee
  • Unsecured funds
  • Poor credit okay

However, some negatives also include high cost of money (up to 150% interest/fees), daily or weekly payments required, as well as dealing with companies who are similar to loan sharks (see

Taxes and MCA – Be Careful

Considering that an MCA is not a loan, small business owners need to be cognizant – BRP Onesta also handles bookkeeping for many small businesses. What is significant is that we consistently see small business owners counting their MCAs as long-term liabilities. Rarely do we not see MCAs listed on a balance sheet as a long-term liability.

Because a Merchant Cash Advance is not a loan and is an advance of future receivables, it should be counted as that – revenue. Therefore, if one receives a $10K MCA, that is an advance of $10K in revenue.

MCAs also do not include interest. They include a pre-determined agreed-upon percentage of business sales to be returned to the lender each day (or week). Payments should be made against the revenue. In theory, the income line should be negative once a MCA is exhausted because the business owner has forfeited a portion of their future receivables to the lender.

What are the implications?

BRP Onesta has clients who have been audited by the IRS and have been penalized for not counting Merchant Cash Advances as revenue. Remember, MCAs are not loans, nor should they be coded on a balance sheet as a loan. Loans are not counted as income and business owners need to understand the implications of using MCAs versus loans so they are not liable for misreporting taxable revenue.

*BRP Onesta is not an accountancy and Thomas Tramaglini is not a CPA. We encourage anyone and everyone to always consult their accountants regarding MCAs.
Dr. Thomas W. Tramaglini is the Managing Director for BRP Onesta, a company that supports small businesses. By offering a host of important and affordable services that small business owners tend to not have time to do themselves, the team at BRP Onesta can help small businesses grow infinitely. Although located in on the famous Jersey shore, BRP Onesta serves clients in all 50 states, Puerto Rico, Mexico and Canada.

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