Tax Benefits of Alternative Funding

July 2021

There are so many unexpected benefits that come with investing in your business growth when you opt for alternative funding. Among them, saving money on your taxes!

Are you considering a Merchant Cash Advance this year? Here are 3 key facts and benefits about tax deductions you can use to your advantage when filing your taxes:

1. Merchant Cash Advances are not reported as an income:

Merchant Cash Advances (MCAs) are not reported as income because they are advance payments on future sales. This makes make them exempt from taxes at the time of the advance. It is a way for businesses to get working capital fast and pay it back by an automated withdrawal of a set percentage of your business transactions.

2. A Merchant Cash Advance shouldn’t be claimed as a loan

When filing your taxes, make sure you do not claim an MCA as a loan either. Given the way an MCA works, the funds you receive are an advance on your income and not part of a loan, therefore they are not subject to tax. Nevertheless, please note that the profits that your business generates and later uses to pay back the funds is, of course, taxable.

3. You may be able to deduct MCA-associated fees

You may feel that you are losing a tax advantage since Merchant Cash Advances aren’t loans and don’t charge interest. But you may be able to deduct the fees associated with Merchant Cash Advances as a business expense. As you pay back the advance, the portion of the payback amount representing the fees could be deductible. The amount you can deduct (assuming you are entitled to claim a deduction) varies according to the terms and conditions of the advance. Ask your tax professional or accountant how to calculate and deduct the MCA fees from your payments.

Consult a trusted financial advisor:

The information in this article is a general overview and is not intended to be financial advice specific to your needs. Your tax situation and your business financial status are unique to you and your business. It’s important to pay very close attention to the IRS rules so that you can properly deduct the interest on a small business loan and avoid unpleasant surprises. Discuss MCAs and their tax advantages with your accountant or financial advisor before taking any action.

About alternative funding options and MCAs:

Alternative funding options tend to be more focused on the future profit potentials of your business as opposed to your past credit history.

One Park Financial's funding programs work as meaningful and substantial connections with funders that believe that small and mid-sized businesses can succeed too.

For help in understanding your options, you can turn to our funding experts. We work with a network of funding sources, advocates for small business owners, and bilingual financial experts that will happily guide you through the funding process and explain your options. If your business has been opened for more than three months and generates revenues of $7,500 or higher, you too can be a part of this network of thriving business owners. Get pre-qualified in less than 5 minutes today!

Disclaimer: This material has been prepared for informational purposes only. It is not intended to provide and should not be relied on for tax, legal, or accounting advice. We suggest consulting with your tax, legal, and accounting advisor before engaging in any transaction.