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Your Guide to Merchant Cash Advances

Arranging for finances is a crucial part of starting a business. There are several options when it comes to financing your business. Yet, most people, especially the small businessmen usually choose one of the popular options only. One such popular option is a merchant cash advance. Merchant Cash Advances have advantages. But they have certain limitations too. Depending on the kind of business you are into, merchant cash advances may or may not be the best option for you. With this, we help you make an informed decision regarding whether or not a merchant cash advance is a good finance option.

merchant cash advances

Never skip the details

In a merchant cash advance, merchants provide the businessman with a lump sum amount and receive in exchange, a decided percentage of future credit card sales. The advance amount that you are going to receive is not the only important thing here. These deals involve factor and retrieval rates. These rates have an impact on credit card sales percentage. They also decide how much you are expected to pay back when the payments are due. If you are unfamiliar with factor and retrieval rates, consider spending time to understand how they work. The small businessman may easily find themselves in a situation where they have to pay back an amount, they are unprepared for.

merchant cash advances

How much can you afford?

The good thing about merchant cash loans is – they have a relatively higher approval rate. Also, an application for an MCA will get processed quickly. However, the downside is – these deals are quite expensive compared to your traditional business loans. If you are starting a new business, you will probably have to pay more money. Enter an MCA deal only if you are confident that you can pay money for a long period, without getting caught in debt.

Are you willing to give up a part of control?

If you are starting small, you may either be alone or a small group of like-minded individuals. You may want to dictate your terms. With merchant cash loans, you need to prepare yourself to give up a part of that autonomy. Merchant cash lenders draw up certain terms and conditions that may restrict the way you want to apply your ideas or interact with customers. Some of the terms may directly counter your plans for the business. If you are going for an MCA, be ready to share control.

merchant cash advances

What problems can the deal solve?

Some businessmen apply for an MCA as they assume that with the lump sum amount, they can handle their business needs for a long time. More often than not, they end up using up the cash faster than they intended. It is not advisable to choose merchant cash advances to solve short term problems. MCA may serve as a short-term solution. Later, you will have unnecessary debts to pay. Only if you are sure that your business will produce steady cash flow, choose a merchant cash advance.