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Are Merchant Cash Advances a Good Idea?

If you’re in the business of business, you’re likely already well aware that the success of your business can plummet within the span of a single breath. There are so many things to keep in mind when it comes to running your business, and it can be extremely stressful if something goes wrong and if you suddenly need a lot of money.

If you’re a small business that is suddenly in need of money, you may want to consider looking into merchant cash advances. However, although they seem tempting, you might want to take a moment to consider if they’re a good idea.

What Is a Merchant Cash Advance?

Before deciding whether merchant cash advances are good or bad ideas, we need to first define what a merchant cash advance is.

The easiest way to describe a merchant cash advance is as follows: these forms of cash advances provide small businesses with money that is removed from a traditional bank and business loans. Business owners who take out cash advances will receive the number of funds they need in a lump sum payment, which makes them great if a small business needs immediate money.

The idea of a cash advance is that the small business will pay back the advance with a specific percentage of the business’s future sales.

Pros of Merchant Cash Advances

  • Merchant cash advances tend to be very fast. You can go from requiring the money to having it in hand much faster than other loans can manage.

  • Most merchant cash advances will offer extremely flexible repayment options, so you can choose the best one for your circumstances.

  • You don’t – typically – need to have extremely strong credit to succeed at getting a merchant cash advance.

  • Once you get the money, you can use it for whatever you want. No oversight requires you to spend the merchant cash advance on a specific part of your business.

  • You don’t need to provide any physical collateral, like your assets or your home.

  • If your repayment is based on a fixed percentage, you’ll be paying less when your sales are low.

Cons of Merchant Cash Advances

  • Merchant cash advances tend to have extremely high APR rates that can average anywhere between 70% and 200%.

  • If you end up in a repayment plan that requires daily repayment, it can make you struggle with your cash flow and overhead payments.

  • Merchant cash advances have no benefit when it comes to building your business’s credit.

  • If your business is doing really well with sales, you may end up with a higher APR, even though you are ultimately paying your loan back faster.

  • Repaying early doesn’t help you in any way, and you might even be hit with a penalty for trying to do so.

  • There’s no federal oversight for merchant cash advances.

  • Merchant cash advances can affect your credit.

Unfortunately, we can’t tell you if it’s a good idea to seek out a merchant cash advance for your small business. When it comes to merchant cash advances, you have to weigh the pros against the cons and also consider just how dire your financial needs are at that moment.

Knowing that you will have to pay a large additional percentage of money back can be a hard pill to swallow, but if it’s that or your business going under, it might be time to bite the bullet and apply for an advance.

Whatever will best serve your business and your circumstances will be the best choice for you.


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