Getting merchant cash advance loan from cash advance company means you will have a quick supply of short-term finance. This is helpful for small business merchants who are in immediate need of cash. In majority of the cases the advance plus fees are known to be repaid within 12 months.
The primary requirement for this is that you will have to make daily transactions with credit card. This is the reason they are called merchant cash advances.
Additional Conditions Applicable
- $2500-$5000 monthly bills for credit cards. This might be higher considering the amount taken as cash advance.
- Proof of the four months credit card history.
If your business is able to cater to these conditions, you have to take a look at the pros and cons of this kind of loans.
Pros of Using Merchant Cash Advance Loans
- The loan that you take from cash advance company doesn’t have fixed monthly payments such as bank loans. There is no interest rate or even pay off date.
- You will not need a collateral. If your business ends up failing and the full restitution of the advance has not been made then the owner’s assets will not be at risk. In fact, if your business fails and the cash advance has not been repaid, there is not going to be any legal liability.
- The repayment procedure is performed automatically. This is based on your credit card transaction. Thus, there is no chance of late charges from the overlooked due dates which might occur frequently with cash loans from the bank.
- You have almost instant access to the funds. The advances are made within 24-48 hours.
- There is better cash flow if you take loan from cash advance company. In case the sales are low for a particular month then you will have to pay less to the company. This is because they collect a certain percentage of the monthly sales.
- Also, there is minimal paperwork.
- In case you require cash immediately but can’t take a traditional loan from the bank or are unable to wait for the loan decision then it is the best way to secure some funds.
Cons of Using Merchant Cash Advances
- These kinds of loan are more costly than the traditional financing.
- Technically, these are not considered to be as loans. Instead, it involves purchase as well as sale of the future income. The advance doesn’t last more than a year. Hence, the cash advance company that are putting up financing do not have to consider the rules and regulations when it comes to the interest rates which the conventional lenders will follow.
- The rates that you are going to pay are much higher.
- A majority of the cash advance contract tends to prohibit the switch of credit cards processor. Hence, if you are not happy with the credit card processor, you are going to be stuck with till you have repaid the cash advance.
- Encouraging someone to pay in cash for avoiding percentage of the sales to cash advance company is considered to be a breach of contract. This might lead to litigation.