Beware Merchant Cash Advances

money on fire

 July 2021

Merchant cash advances (MCAs) are a good idea in theory. You need money now to buy more products or fix a piece of equipment and you can get all the money you need within 24 hours of approval. Good idea, right?

Well, MCAs are a cash advance based on credit card sales of your business. These advances are not loans in the normal sense of the term, they are a sale of a portion of the future credit/debit cards sales that your business will make. Unlike a normal loan, MCAs require payment weekly and no matter if your sales are up or down your business will still have to pay the MCA the agreed upon rate.

Before signing up for an MCA, you should get to know more about them and their advantages and disadvantages. We will start off by talking about the advantages. One of the advantages that MCAs boast is their quick turnaround after approval. This allows for businesses who need quick money to get the financing that they so desperately need. Another advantage is that physical collateral is not required to acquire an MCA. This is very appealing to business that need cash fast and do not have time to wait for a traditional bank to go through their assets. Basically, MCAs’ one advantage is that it is quick to get you the money you need when you need it.

While an MCA seems to be the right choice if you are in need of cash, the disadvantages may sway you from going with this form of financing. Many people do not take loans with high APRs (annual percentage rates), and without your knowledge you may be accepting an MCA with an APR that is 350% or above, and no one wants that. Also, if you try repaying your MCA off sooner the APR will start increasing even more that what it originally was. Since MCAs are not technically loans, they are not subject to federal regulation, they do not have to follow the normal banking laws. Most MCAs require you to pay them back weekly or even daily, which takes a lot out of a business’ profit and puts them back where they were when they needed the MCA to being with. MCAs with their high payments it can cause people to be in a debt cycle especially if they do not qualify for other types of financing.

By looking at the amount of disadvantages over the advantages, you can see why many people would recommend staying away from Merchant Cash Advances. We all need a little bit of help from time to time but MCAs are not here to help you. If your company does business to business sales, invoice your customers, and need cash quick you should check out invoice factoring, it has better rates and won’t bankrupt your company. We hope this helps you inform your decision on MCAs and your future financing needs.