According to statistics from the Consumer Financial Protection Bureau, about one million businesses in the USA have accounts of cash advance. This figure makes it not as popular as the rest of the funding sources. Nevertheless, it has numerous businesses quickly access capital or cash flow needed for their daily costs.
Do you need quick cash for your business yet you don’t have it? Merchant advance cash could be your solution. However, before taking this idea into action, let’s delve into it and understand the ins and outs. Any financial decision, especially for your business, requires a careful and calculated thought. In a different perspective, a merchant cash advance is more like a transaction than a loan.
Unlike a loan, a merchant cash advance is upfront money lent to a business owner. The advance is given in consideration to your future income as a business person. Every time you receive a credit card payment, the advance is deducted until the entire amount is fully repaid. The creditworthiness of the borrower determines the amount of most loans and advances.
This is similar in merchant cash advance. Business people who receive large credit card sales qualify for a bigger loan than the rest. Repaying the advance begins as soon as the business owner gets credit card payments. Repayment period could be as little as three months or as long as eighteen months.
Benefits for MCA
If you don’t have time for paperwork and bureaucracy at the bank, merchant cash advances are your option. They are quick and offer within a week of requesting them. All the provider needs is to evaluate your business’ credit card sales and determine how much you will get.
You will not lose your business, home or any other valuable asset. Merchant cash advances are unsecured. Apart from an impressive record of credit card sales, no collateral is required. Such unsecured advances leave the liability to the provider. When applying for the advance, your provider will need your guarantee of paying back. The contract will be used as a legal document in case of anything.
The amount of repaying is as per the credit card sales your business is making. This is an advantage for you as the business owner. Even when the sales drop, you will have no pressure of meeting a certain fixed amount. The repayments will be a portion of the sales you make.
A business person stands to have higher creditworthiness with merchant cash advances than other loans. The provider may not even look at the borrower’s credit score, which increases the chances of the borrower qualifying for more money.
Demerits of MCA
All fees and annual percentage rate considered, merchant cash advances are more expensive than traditional loans in the bank. Unless you lack another option and urgently need cash, let MCA be your last resort. Cut your costs by choosing another funding source with a less financial negative implication.
Instead of higher sales benefiting your business, they will incur more annual percentage rate if you have a merchant cash advance. The APR relies on total fees as well as how soon you repay the advance. Slow repayment will take long by spreading out over a long duration of time. However, your APR will be low. On the other hand, the APR is higher for business people who pay fast and use a short duration.
While other types of loans or advances give an offer for borrowers who pay early, merchant cash advance does not. If anything, finishing your repayments early will only increase the annual percentage rate. Refinancing still does not exempt you from the fees agreed upon. In some instances, some borrowers receive a penalty for early payment.
A merchant cash advance does not have federal oversight. This indicates that it lacks regulation beyond the Uniform Commercial Code. Such loopholes expose business people to harsh terms and unfairness. Each state has its commercial code, which may not be comprehensive. It explains the different terms and increased costs, which differ from other forms of loans.
A possible vicious cycle of debt could trap business people, mainly if they don’t qualify for other types of loans. Before you finish repaying one, your business requires you to take another advance. Also, paying a lot of money every day could strain the cash flow of the business. Unlike other loans, merchant advance cash demands payment from daily sales through credit cards.
Merchant cash advances are meant for business people requiring a quick source of capital. They are easy to get and will serve your purpose, but they also have shortcomings. Due to the numerous issues surrounding them, business people use them as a last resort. However, it does not mean they are ill-advised. Weigh your options carefully and choose the solution that suits you best.