What are the Pros and Cons of Merchant Cash Advances?

For online and small business owners who are in need of quick access to capital so as to grow their business, then business cash advance (merchant cash advance) is a very solid option. A merchant usually gives businesses upfront capital or cash in exchange for a portion or percentage of future credit card sales. Many online or small businesses need cash advances for things like making payroll, purchasing new supplies and equipment, growing inventory, advertising and marketing budget, renovations, rent, and so on.

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If you’ve had strong sales yet you struggle with bad credit or no credit history, then merchant service credit cards might just be a good option for your online or small business. Getting the capital that you need when you require it can make or break a new business.

Traditional lenders like banks are mostly reluctant to extend traditional loans to businesses with poor credit scores. Such types of businesses will be deemed “extremely risky” and will have great difficulty in securing a traditional bank loan for all their business needs. This could be a problem for most online or small business owners who require the capital to buy additional inventory, operate their business, or produce goods. This is exactly where merchant service cash advances come in handy. A merchant cash advance will get you the money that you need at a quick turnaround time so that you can continue running the daily operations of your business.

How Are Cash Advances Different From a Traditional Bank Loan?

The best merchant cash advances are quite different from traditional loans because instead of having a fixed repayment plan with set interest rates (similar to the way you would pay off a car loan monthly), merchant cash firms together with alternative business loan lenders, like Kabbage, recoup their funds just by collecting a certain percentage of the total credit card sales of a business each month. Additionally, that business would also pay any fees associated with their loans.

Pros of Merchant Cash Advances

  1. Get Cash Fast

One of the main positive factors for online or small businesses when considering these types of business advances is getting cash quickly. Business cash advances don’t take a long time to process compared to traditional bank loans. As a matter of fact, some capital or cash can be delivered to the business within hours after submitting the online application. This is great news for the business owners who simply do not have time to wait for the long processing that’s typical of many banks as well as larger lenders.

  1. Little to No Paperwork

Everything is usually done online. As a result, there’s no lengthy paperwork for you to fill out, scan, fax, or mail. This, in turn, decreases your wait time while also increasing your turnaround time.

  1. Repayment is not Always a Fixed Monthly Amount

Another benefit when considering the best merchant cash advance is that repayment might be easier over a certain time. This might work in the business’ favor, especially if your sales are quite slow at first because the payments are based on the percentage of sales as opposed to fixed monthly amounts.

  1. High Approval Rates

This is great news for struggling small business owners who might have been turned down for traditional loans from banks and many other lenders. Higher approval rates from firms offering merchant cash advances usually means higher chances of obtaining the capital that you need.

  1. Perfect Credit Not Required

This is a very big factor for most struggling online or small businesses. As the economy takes swings and dips from high to low, most effects are felt mainly by small business owners. The effects may include low sales, dwindling markets, and bad credit. In addition, unlike larger corporations that have millions of dollars at their disposal, smaller businesses are mostly unable to get the cash that they require to sustain their businesses because of their bad credit scores. Companies that offer the best merchant cash advance usually provide a lump sum of cash in exchange for the future sales. By doing so, they can approve the merchant cash credit cards with little consideration of bad or poor credit scores. This is definitely a plus for business owners.

  1. No Collateral Required

Again, since merchant cash advance is not like traditional bank loans, there’s no collateral for a business to put upfront. Instead, the approval of transactions is based on past credit card sales of businesses. Therefore, in case your sales are strong, then you stand a very good chance of getting approved for a merchant cash advance.

Cons of Merchant Cash Advances

While there are very many benefits to consider about pursuing the merchant service credit cards, there are a few things to be aware of. As the owner of the business, the decision totally depends on you. You’re the only person who knows what makes sense for your businesses and what will propel the business forward. With that kept in mind, here are few things to consider regarding a merchant cash advance.

  1. High Interest Rates in Some Cases

Ensure that you thoroughly review all the terms of repayment so that you know exactly how much you will be responsible for repaying.

  1. Unregulated Industry

This section of the lending industry isn’t regulated because their repayment terms are usually tied to future sales of credit cards. This is why it’s critical for you to do your homework well. Reputable companies like Kabbage generally have a leadership team with several years of experience within the industry. This is very important when you are considering additional funding for the business.

  1. Fees

Companies that usually offer the best merchant service cash advance can charge a variety of fees. Ask the provider upfront so that you can make the best decision for your business.

The Bottom Line

As you do your own homework and research about these companies online, you will want to consider things like reputation. Always check Better Business Bureau for client feedback and ratings, and examine their site thoroughly. Also, look at their leadership team as well as the experience that they bring to the table. Take a closer look at their media room or press room to see how they have been portrayed in the media to get a better picture before you make a decision.

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Posted on February 15, 2023