The Pros and Cons of a Merchant Cash Advance

A number of small businesses are in a dilemma because they need funding but are having a hard time getting approved by a bank. Fortunately, there are some solutions you can consider. If your personal or business credit is not that great or you don’t have all the qualifications for loan approval, it may be time to consider a cash advance. Merchant Cash advances are easier to get than conventional loans because there aren’t strict credit requirements and the process is usually shorter. However, you should be aware of the pros and cons of a cash advance, so you can choose the funding option that is right for you.

The Pros of Cash Advances

The most attractive part of a Merchant cash advance is that these loans are easy to obtain. Lenders will usually provide these loans without stringent credit requirements and you don’t have to be in business for a long time in order to get approved. If your business processes several credit cards on a regular basis, your odds of approval are pretty high.

You also won’t have strict repayment terms to deal with. The advance company doesn’t rely on you to make monthly payments; instead, the advance company is repaid based on the percentage of your credit card sales. A percentage of the repayment is deducted automatically from your sales until the loan is completely paid off.

Again, if you have poor credit or you don’t have a lot of borrowing history, it’s a good idea to take advantage of a cash advance. There is also a very little risk if you default on the loan for any reason, but this shouldn’t be a problem since you’ll be paying the loan back from your credit card transactions.

The Cons of Cash Advances

Cash advances, especially merchant cash advances, are very easy to get in most cases. However, there are some drawbacks that you should be aware of. The loans tend to have high-interest rates, and it’s pretty common for a merchant cash lender to take up to one-fourth of every credit card transaction that goes toward fees and repayment terms associated with the loan. This can result in you as the borrower paying more money over the loan term. For companies that can’t get traditional funding, this is usually a very small price to pay to get the funds you need to keep your business going.

Another risk of a cash advance is that this type of lending is not currently regulated. This means that the loans can be considered high-risk unless you’re getting the funds you need from a credible source.

Even though there are some things to consider before you apply for the merchant cash advance, this is usually still the best option for new businesses who don’t want to apply for a loan from a traditional bank. It’s best to meet with your financial advisor to go over all the terms of the merchant cash advance, so you’ll know exactly what is required of you when it’s time to repay.