If you are a small business owner, and a Merchant Cash Advance (MCA) looks like it’s a great deal, you need to be careful to do your homework before you commit to any sort of financial deal. The quick cash that you are banking on to help your business get out of a bind could really end up costing you.

Merchant Cash Advantages are known to carry notoriously high annual percentage rates compared to other types of loans that may be available. You might end up paying in the triple digits to repay the money and all the fees that are attached to a Merchant Cash Advance. This can not only cost you serious money but might make more financial trouble for your business in the future.

Often, Merchant Cash Advances are recommended as a last resort. In this piece, we will look at all of the different pros and cons of these loans so you can determine if these are the right loans for you.

How Do Merchant Cash Advances Work?

Merchant Cash Advances (MCAs) work by restructuring your payment in one of two ways. One option is that you can get a lump sum in return for paying the lender a percentage of your credit card sales each time a customer pays with a card. The second option is that you can pay a weekly amount to the lender that you agreed upon in your contract.

Many Merchant Cash Advances (MCAs) have also been known to carry annual percentage interest rates for the life of your loan.

Pros of a Merchant Cash Advance (MCA):

Most experts can agree that a Merchant Cash Advance should be an option of last resort. However, some of the positives of using a Merchant Cash Advance to fund your business can include the following:

Getting one is usually pretty fast and you can apply without doing a ton of paperwork. Most lenders determine your eligibility by looking at how much your transactions amount to each day to determine if you qualify.
You don’t have to put up any physical collateral or asset from your company to be able to get a cash advance.
If your sales decrease, your payment decreases too so you don’t owe a substantial amount of money that you cannot pay.

These are some of the plus sides of using Merchant Cash Advances (MCAs) to get the cash you need to fund your business.

Cons of a Merchant Cash Advance (MCA):

There are quite a few downsides to using Merchant Cash Advances (MCAs) as well. The following are some of the downsides to MCAs that you want to consider before signing a deal:

Interest rates can reach the triple digits with anywhere from 40% to 350% being common rates on these cash advances.
The higher your business’s sales are, the higher your APR rates will be as you will pay more money on the cash that was advanced to you.
There are no benefits if you repay the loan early.
There is no federal oversight of cash advances that your business may receive.
You may have your credit score pulled during the process.
If you give up too much of your sales, you might end up in an endless cycle of debt as your business’s cash flow is slashed.
These contracts can be extremely confusing to understand.

These are some key reasons you want to steer clear of cash advances, and only use them as a last resort if your business is nearing bankruptcy.

For more information on alternatives to Merchant Cash Advances (MCAs) and other ways to get the funding that your business needs, please feel free to contact us! We are here and ready to help!