Pros and Cons of Merchant Cash Advances

Finding the proper funding for your business can be challenging, especially with all the available options on the market. The best way to determine which is best for your needs is to compare the pros and cons of each method. For instance, a merchant cash advance can provide quick funds in a pinch, but the contracts can be confusing. Knowing these facts can help you determine if the pros outweigh the cons.

Pro: Fast Funding

One of the biggest reasons some businesses prefer a cash advance over other forms of funding is that you can get the funds quickly. Many providers have online applications and minimum required documentation so you can be approved in hours and see the money deposited in your account within a day.

Pro: Sales-Based Repayment

Instead of relying on a fixed monthly repayment amount, cash advances are repaid with a fixed percentage of your sales. Some MCA providers will even automatically deduct the portion based on the credit and debit card sales you make each day, so you will not have to remember to pay another bill.

Pro: Flexible Requirements

Unlike other forms of financing, such as bank loans, a merchant cash advance has flexible requirements. MCA providers will focus more on your average sales than your credit score, basing the risks of repayment or default on how your business is currently doing instead of what it has done in the past. Still, the better your debt-to-income ratio and credit history, the better rates you are likely to receive.

Con: Debt Cycle Danger

Frequent repayment and debt cycles are easy to fall into with a cash advance. Because the repayments are generally taken daily, and the principal, fees, and term will determine the percentage rates, your cash flow can be seriously impacted by taking out an advance.

Con: Expensive

Because of the convenience of flexible requirements and quick cash, the fees associated with MCAs are pretty steep. When you add those to the fact that you do not get benefits from repaying early, an MCA can be out of reach for some companies.

Con: No Federal Regulation

Because an MCA is classified as a commercial transaction, not a loan, no federal regulation exists on the lenders or contracts. If you are not careful, this can lead to confusing contracts and even predatory lenders.

For some companies, a merchant cash advance can be the best way to quickly get the funding you need without the hassle of applying for a loan. However, some risks are involved in an MCA, such as confusing contracts and the danger of falling into a repayment and debt cycle.

Seek Expert Assistance

Make financing easy by getting a merchant cash advance from Sterling Commercial Capital LLC. Call today to schedule your free consultation.