Pros And Cons Of Getting Merchant Cash Advances
Owning a business can be a very rewarding experience. For many Americans, it is a dream come true. However, it takes long hours, hard work and determination to make it work. There are going to be many times that business owners find themselves short on capital. It could be needed for repairs, purchasing new equipment, advertising or hiring new employees. Whatever the reason may be, a great way to get extra funds for your business is with a merchant cash advance. These are different from typical small business loans that you apply for at banks and credit unions. Below are some of the top pros and cons of taking out a merchant cash advance for your business.
What Is A Merchant Cash Advance?
To put it simply, a merchant cash advance is a funding option that businesses may use to get a lump sum of money from a lender. The repayment of this money is different than a typical loan. When you take out a business loan, you will have a set payment plan to repay the loan and interest fees. With a merchant cash advance, the payments you make towards the balance will be based on a pre-determined percentage of your debit and credit card sales.
Pros Of Merchant Cash Advances For Businesses
There are many benefits of these types of loans. The main benefit is the ability to have fast access to financing when you need it most. If you are temporarily low on funds and need capital for the business, a merchant advance could be the best option available. Traditional loans can take weeks to get and you have to meet many strict criteria in order to get approved.
Lenders of merchant cash advances are more lenient with their application criteria. The range of accepted business applicants is much wider than with traditional lenders. Traditional lenders typically only approve businesses for loans if they have good credit, an established history and can prove they have a certain amount of incoming revenue each month.
Merchant cash advances are a very viable option for newer businesses that don’t have a solid revenue stream yet. The advances are paid back as a percentage of sales instead of a payment plan based on credit. This alone makes it a more safe loan option for many businesses. A large loan payment from a bank or credit union might be too difficult to make each month for some businesses.
Another great benefit of a business obtaining a merchant cash advance is that there is no collateral needed to get approved. This is because the lender will look at your current sales in order to gain an idea of what you can afford to pay back. Traditional lenders require collateral for most loans.
Cons Of Merchant Cash Advances
There are many more benefits to these types of loans than disadvantages. However, there are a few to consider. These types of funding options typically come with higher interest rates and fees than traditional loans do. Also, the repayment amounts could put a dent into your daily cash flow until you have fully repaid all that you owe. Lastly, it may be hard to get out of the loan, even if you find another option to pay it off. The repayment of your merchant cash advance is completely tied to your daily sales volume. This makes it practically impossible to pay it off early if you find a better loan offer.
When you own your own business, you will find yourself having to make difficult decisions about finances often. When you need access to capital quickly, there are not as many options for newer businesses compared to established ones. For some, a merchant cash advance could be a saving grace.