A business cash advance or otherwise known as a merchant cash advance is a financing method that allows entrepreneurs to borrow a certain sum in exchange for a percentage of its future monthly credit card sales, thus the name.
Just like any other financing option, it has its own terms and arrangements thereby its own set of pros and cons. Entrepreneurs, business owners and directors need to know what these are to better and more smartly weigh in its use. Will it be beneficial or will it bring more harm than good? These things have to be answered in order to come up with better decisions for the company. On that note, below is a list of the benefits and disadvantages that a business cash advance can bring.
- There is little to no paperwork required. Unlike traditional credit types, the amount of paper work is much lower if not none at all. This makes it a good choice for emergency and immediate needs.
- Cash is fast to acquire. Many providers can give you the cash in a few days time.
- No property collaterals are required. You need not worry about losing any of our fixed properties to forfeiture.
- Repayment is income dependent and not fixed. The payment is equivalent to an agreed upon percentage of credit card sales per month. If you have high sales then the bigger payment is and the faster it is closed out. The smaller it is then the smaller payment is too creating less to no financial strain on the company.
- There are more chances of approval. Business cash advances have higher approval rates compared to bank loans for example.
- You need not have a perfect credit score. Providers bank on your credit card sales more than your past and present credit grade making this an option even for financially distressed businesses.
- They tend to have higher costs. Due to the higher level of risks involved, providers will require a rate that is slightly higher than what other financing methods may require.
- Some providers may put in restrictions. To ensure the level of credit card sales, some providers will restrict discounts and sale to clients for example.s
Just keep in mind that the use of a business cash advance can vary. Moreover, no two entities are exactly alike so the pros and cons that arise can vary too. Make sure that you study and analyze carefully before jumping into conclusions.