Merchant Cash Advance: The Advantages and Disadvantages

Merchant Cash Advance: The Advantages and Disadvantages

At some point, almost all small businesses need additional funding. However, many find it difficult to qualify for traditional loans and lines of credit. For this reason, they often turn to alternative forms of funding such as merchant cash advances. We want to help you determine whether a merchant cash advance can suit the needs of your business. Here are the pros and cons of this type of financing.

What a Merchant Cash Advance Is

A merchant cash advance is not a loan. Instead, the financing company offering the advance purchases a percentage of your future sales. You receive a lump-sum payment based on your need and the financing company’s estimate of the number of your future earnings, and you pay it back in increments withdrawn from your income on a daily or weekly basis.

Advantages of a Merchant Cash Advance

A merchant cash advance is a means of obtaining cash quickly if you have unexpected expenses or you want to take advantage of sudden business opportunities. Approval rates are high. You are usually only required to submit the application and provide identification and some bank statements from your company. Although the financing company may check your credit, you can still get approved even if your credit is not perfect. Unlike loans or lines of credit, you do not need to have collateral in the form of upfront assets.

Disadvantages of a Merchant Cash Advance

It is also important to be aware of the drawbacks of merchant cash advances. For instance, they are more expensive than most other forms of financing. They are only effective in solving short-term funding problems. You should also realize and account for the fact that your income will be reduced while you are paying back the advance. Sales are often hard to predict, so you need to be reasonably sure that your future sales will be sufficient to handle your company’s needs as well as payments on the advance.

Contact Toluca Lake Capital. Our team of financial experts can help you with all your commercial finance needs, so you can continue to grow your business.