The Pros and Cons of a Merchant Cash Advance for Your Small Business

When researching financing options for your small business, you may come across merchant cash advances. It’s an alternative form of financing that involves a cash advance based on future credit card and debit card sales. Assuming your small business generates credit card and debit card sales, you can use them to obtain a merchant cash advance. There are both pros and cons associated with a merchant cash advance, however.

Pro: Fast

You can obtain a merchant cash advance in very little time. While traditional business loans can take weeks or even months to obtain, merchant cash advances only require a few days on average. As long as your small business meets all of the necessary requirements, you can get a merchant cash advance in just a few days.

Pro: Not Credit Based

Merchant cash advances aren’t credit based. Why does this matter? Not all small businesses have credit. Even if you have stellar credit, your small business may not have any credit. This isn’t a problem with a merchant cash advance. As previously mentioned, merchant cash advances are based on future credit card and debit card sales. Lenders who offer them pay little or no attention to credit. Instead, they focus on credit card and debit card sales.

Pro: Adjustable Payments

You’ll have to make payments to the lender with a merchant cash advance. The good news, though, is that these payments are adjustable. You won’t have to pay a specific amount each month. Instead, merchant cash advances involve adjustable payments. The amount of your payments will depend on your small business’s credit card and debit card sales. The more card-based transactions your small business processes, the more you’ll typically have to pay.

Con: High Interest Rate

While they technically aren’t loans, merchant cash advances still have interest. You’ll have to pay interest on the amount of your small business’s future credit card and debit card sales forwarded by the lender. And interest rates for merchant cash advances are typically higher than those for traditional business loans.

Con: Doesn’t Build Credit

If you’re looking to build credit, you may want to choose a different financing method for your small business. A merchant cash advance won’t build credit for your small business. You can build credit using a traditional business loan, but you can’t build credit using a merchant cash advance.

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