Applying for Business Loan: Business Cash Advance Pros & Cons

A business cash advance, also called a merchant cash advance, can be a striking option for emergency expenditures like products repairs work, and revenue gaps. However, take the time to learn both the pros and cons of this type of funding before applying. Let’s dig deeper into the topic and see who can best help you with a business loan you might need. 

Business Cash Advance: Advantages and Disadvantages 

A business cash advance or merchant cash advance (MCA) isn’t a loan: it’s just the sale of the future credit card receivables of your business. Before applying for this type of financing, make sure to study both its pros and cons to see whether you need to pursue this option or not. 

Advantages 

• Quick Access to Funds 

A business cash advance is among the fastest forms of small business financing available. You can receive your funds in your bank account in as fast as 24 to 48 hours.

• Remittance Structure

The repayment is based on a fixed percentage of monthly credit card receipts each month (e.g., 10%). If you have a slow month, you don’t need to worry because you won’t be required to pay as much as you would during busy seasons.

• No Need to Show a Stellar Credit Score

You can get approved for a business cash advance even if you don’t have a near-perfect credit score. Providers are more interested in whether you can pay back the borrowed amount or not. 

For example, when interested in a business loan, you can apply to a reputable alternative online lender that specializes in the high risk field if you have poor credit or no credit at all. Make sure the offered rates are among the cheapest and the services are among the most advanced. 

• No Need to Put Up Collateral 

You won’t be obliged to provide collateral, e.g., property or equipment, which is the case with many other types of financing. 

• You’ll Know the Repayment Amount in Advance 

When making the repayment, you’ll be charged the funding amount and the factor fee the lender charges. You’ll know upfront how much the repayment will be. You won’t face late fees, and interest never accrues.

• Automatic Payments 

Your payments will automatically be withdrawn from the received credit transactions of your business. As a result, you won’t spend time on scheduling your payments.

Cons 

• Higher Fees

A business cash advance is expensive. The annual percentage rates (APRs) can be as high as 350%.

• Temporary Solution

This type of financing can help you solve temporary cash shortages.

• Daily Deduction from Your Credit Card Receipts 

Many providers deduct funds from credit card receipts each day. So, if you have cash flow problems, an MCA can’t be the best option for you. 

• Unregulated Field 

Business cash advance lenders operate in a largely unregulated industry. So, if you need more regulation, you might want to look for another option.  

• Limitations

You may find “fine print” placing limitations on your business while you’re fulfilling your obligation.

• Not Receiving Credit Card Sales

You may find a section in your business cash advance contract that limits businesses from offering incentives for non-credit card payments. Not receiving credit card sales can create problems for you while fulfilling your obligations.

Pros and Cons of a Business Cash Advance

A business cash advance can be a useful tool for certain situations. However, it also comes with risks that you should know. Work with a respected business cash advance provider to get the best deal for your company. 

Author Bio: Michael Hollis is a Detroit native who has helped hundreds of business owners with their business loan solutions. He’s experimented with various occupations: computer programming, dog training, accounting… But his favorite is the one he’s now doing — providing business funding for hard-working business owners across the country.