Merchant Cash Advances: The Good, The Bad, And The Right Fit

Merchant cash advances can get a pretty nasty rap in the world of business finance.  Known for having high interest rates and tough contracts at times, this form of business funding’s reputation has been wrongfully tarnished by many horror stories.  As bad as merchant cash advances are thought to be, the truth is that they are often maligned and misunderstood.  Before you make a conclusion about merchant cash advances, it’s best to know all sides of this business funding form.

The Good Side Of Merchant Cash Advances

Merchant cash advances serve the same purpose as a loan, in the sense that they offer money that can later be paid back, but aren’t loans in the typical sense.  If anything, they most closely resemble unsecured loans, since they require no collateral.  This means that business owners who used cash advances never run the risk of losing their home or company property due to an inability to pay back loans.

Payments made towards merchant cash advances are based on your credit card sales, so if you don’t make any money, you also don’t have to worry about paying back the advance.  For business owners in need of flexibility, this can be an incredible perk.

Since the merchant cash advance industry is less regulated, different companies can have different standards on who they consider high risk.  This means that companies that operate in risky industries are more likely to find funding quickly through an MCA company than they would be through a bank loan.  Similarly, different companies can apply different risk values to different industries, so it’s quite possible that one company may offer you a low-risk discount while another would charge a high-risk fee.  This makes shopping around for a cash advance more satisfying and fruitful than shopping around for a bank loan.

Lastly, merchant cash advances can be given out extremely quickly.  Upon approval, most cash advances are given to applicants within a matter of days, or even hours.  If time is of the essence, a cash advance is the best choice.

The Problems With Merchant Cash Advances

Cash advances aren’t without fault.  The biggest issue people have with them are their exorbitant interest rates.  Because of the nature of cash advances, it’s not uncommon to hear of APR’s as high as the triple digits.  The faster you pay off the advance, the higher the APR will likely be.  Even so, the high rates tend to be worth it for many.

Business owners who haven’t read the fine print of a merchant cash advance may be stunned to find out that there’s little to no benefit to them if they pay it off early.  Since you have to pay a fixed sum, you won’t be saving any money on interest if you pay it off early.  In fact, it won’t even add a boost to your credit score if you amortize early!

The same lack of regulation that makes merchant cash advances obtainable can also bite borrowers back if they don’t meet the minimum requirements.  Merchant cash advance companies each have their own guidelines by which they can accept or reject businesses.  If your company doesn’t have strong credit card sales, you won’t be able to get a merchant cash advance.  If you work in a field with a multitude of credit card returns or credit card fraud, a merchant cash advance might also be out of reach.

Is It Right For You?

Only you can tell whether or not a merchant cash advance is the right choice for your company, or if it’s even a plausible option.  Business owners that aren’t sure of how a merchant cash advance will affect their company might want to talk to a professional in the finance field to figure things out.  There may be a better solution out there for your situation, but it’s hard to know about all your options unless you’re in the world of business finance.