Merchant cash advances have been getting a lot of attention as a way for small business owners to get quick cash when they need it. But are MCAs really the best solution for your business? Let's take a look at what merchant cash advances are and why you may want to avoid them.
A merchant cash advance is often sold to small business owners as a way to find quick cash when they need it.
A merchant cash advance is a form of financing that allows you to borrow money based on the credit card processing fees you collect. You might think that getting money from your credit card processing fees sounds like a good idea, but merchant cash advances come with many drawbacks and can cost your business a lot more than you think. Let’s look at what this type of debt relief looks like and how it works, so you can make an informed decision about whether or not it’s right for your business.
While Merchant Cash Advances (MCAs) have been written up as a better alternative to a business loan, they can become very problematic. Unfortunately, it is very easy to get trapped in the cycle of debt that comes with MCAs.
While Merchant Cash Advances (MCAs) have been written up as a better alternative to a business loan, they can become very problematic. Unfortunately, it is very easy to get trapped in the cycle of debt that comes with MCAs.
They are easy to get but difficult to pay back. There are many horror stories about merchants who have fallen into deep debt because of these loans and are unable to repay them on time or at all due to changing circumstances in their lives or businesses. Without collateral, it is hard for banks and other traditional lenders like credit unions because there is no real protection from defaulting on payments by the borrower or guarantors if there is no collateral involved. If someone defaults on their payments then the lender has nothing tangible that can be used as payment if need be; only intangible assets such as personal guarantees or credit scores which may not hold much weight in court proceedings!
To understand why MCAs are so hard to get out of, let's first look at how they work.
Most of us have been there. You get yourself into a bit of financial trouble and find yourself with mounting debt. You look for help, but the only thing available is an MCA loan. It seems like the answer to all your problems—a way out from under your ever-growing debt load. But then you start paying on it and realize how hard it is to get out from under that burden again!
So what went wrong? How did things go so far off track? To understand why MCAs are so hard to get out of, let's first look at how they work:
Unlike a small business loan, an MCA isn't technically a loan; it is actually the purchase and sale of your future revenue in exchange for quick access to money now.
Unlike a small business loan, an MCA isn't technically a loan; it is actually the purchase and sale of your future revenue in exchange for quick access to money now.
Most companies charge a large one-time fee for the privilege of using their money. This fee is usually around 25% of the amount advanced on average and can be as high as 40%.
An MCA provider will offer cash to you upfront, typically in exchange for a percentage of your future credit card sales.
An MCA provider will offer cash to yo
u upfront, typically in exchange for a percentage of your future credit card sales. The MCA provider charges you a large one-time fee for the privilege of using their money. And they charge you a percentage of your future credit card sales until the loan is repaid.
The MCA provider will charge you a large one-time fee for the privilege of using their money—this fee is not tied to your success or failure but is simply charged upfront.
The MCA provider will charge you a large one-time fee for the privilege of using their money—this fee is not tied to your success or failure but is simply charged upfront. The fee can be calculated as a percentage of the amount advanced, on your monthly revenue, on your credit card sales and even on daily revenue. If you have low sales/revenue and are paying off high interest rates then this will likely be more than double the APR of those debts!
For example, the MCA may offer you $100,000 but charge you $150,000 up front—this means you'd have to pay that MCA company back $250,000 before the advance is paid off.
For example, the MCA may offer you $100,000 but charge you $150,000 up front—this means you'd have to pay that MCA company back $250,000 before the advance is paid off.
The fee charged by a merchant cash advance provider may be based on the amount of money they're lending. If they lend less than $150 million in total and charge 1% of your outstanding balance as an upfront fee then they'll want an extra 1% from any further loans because those would be considered more risky since there's less collateral available to secure them.
Banks usually don't charge fees for using their own money (the funding side), but instead base it on how much profit is generated through interest payments and fees (the servicing side).
Conclusion
Merchant Cash Advance Debt Relief is a great way to help your business grow and succeed. But if you’re struggling with debt, it can be hard to know where to turn for help. We offer solutions that allow you to get back on track without putting pressure on your finances—without making any sacrifices at all! Click here to speak with a Financial Consultant