What are the pros and cons of merchant cash advance?
When you take out a merchant cash advance, you receive a loan or capital form a lender in exchange for a percentage of your future credits and sales. A merchant cash advance is easy for small business owners to obtain and can offer plenty of benefits as well as risks
A fast funding
A merchant cash advance finding is one of the fastest financial business loan funding. All you need for a merchant cash advance is proof of income and a credit report and you can apply for a merchant cash advance. You also need to provide a bank statement to the lender before you apply for a cahs advance. If they approve, the funds will be in your account within 24 to 48 hours
The amount you owe stays the same
Lenders do not charge additional or late fees to the amount you owe them. When you receive a merchant cash advance, the lenders will let you know the exact amount plus interest that you are supposed to pay the back. This will remain constant until you clear all the payments.
You can qualify even with a bad credit
As long as you put up an asset as collateral to secure your loan, the lenders won’t have to worry about the status of your credit report or the number of points in your credit. When you are unable to repay the loan, they sell the collateral to make up for the rest of the payments.
The monthly instalments are fixed
When you take out a merchant cash advance, you are supposed to pay back in a fixed percentage of your credit card or debit card transactions. Cash advance lenders do not have to worry about not paying back the loan. The lenders will take their percentage no matter the amount in your transactions.
It is expensive
Cash advance is one of the most expensive forms of loan financing. Business people only go for this loan option because it is easy to apply and there is a 99 percent chance of approval. The interest rates on a cash advance are high, making it quite expensive to repay.
With a merchant cash advance, you have less control over your business
Some lenders will give you terms or guidelines before they approve you for a cash advance. When you agree to some of the terms, you will lose control of some part of your business. The most common rule is that your customers can only pay with credits or check so that the lenders can have a way to make their percentage deductions.
Merchant cash advance has an impact on your cash flow and profits
The payments on a cash advance are made anytime you make a business transaction. This means you won’t receive the full profits you make on your business. This will hurt your income and cash flow in the long run. You will make less profit which will keep your business in a stand still.
A cash advance may help you solve some of the small issues in your business, which is a short term solution to the problem. The money you receive on a merchant cash advance is not enough to make a huge development on business wise.