Are Merchant Cash Advances Good for Startups?

A full list of the benefits is provided below:. It is a good idea to talk to your client about the situation prior to handing their invoice over for factoring, this is especially true if the factoring company wants to run a credit check on your client to see if they will be able to pay the invoice. Advances on regular sales are repaid through bank account debits. Some of the products we feature are from partners. Establish or build my credit score. And while the industry has begun to set standards, the fine print and high interest on merchant cash advances can still make them a risky choice.

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So, if a merchant cash advance is so expensive, why does it still exist? Why are many small business owners still taking advantage of merchant cash advances? The answer is pretty simple — you qualify even if you’re a new business. A cash advance is a short-term cash loan taken against your credit card’s credit line. Cash advances are a convenient way to get fast cash, but they’re also expensive. They charge fees and. While a business cash advance is a quick way to get cash, it can also be a little expensive. However, Maverick measures our fees as a factor rate, which can range from to The advance amount you receive is multiplied by that factor rate to determine the total amount that you’ll pay back.

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Why Does a Merchant Cash Advance Exist?

The practice, which is mostly unregulated, drew attention in and when credit dried up. At the time, the number of providers exploded to around 50 up significantly from the dozen or so at the beginning of the decade , and some small business owners complained of fly-by-night advance providers charging usurious rates.

NAMAA was formed by 10 merchant cash advance providers in , and seeks to set ethical standards for the industry. And while the industry has begun to set standards, the fine print and high interest on merchant cash advances can still make them a risky choice. Here, experts reveal four questions you should ask yourself to determine whether a cash advance is right for your small business. Have you done enough research? If you are going to take a cash advance, do thorough research on the merchant cash advance provider before signing anything.

As for companies that may have engaged in abusive practices in the past, Goldin reiterates that those are no more in an industry that has learned to regulate itself. Cash advance providers often engage in aggressive marketing campaigns.

Small business owners need to search out reliable third-party financial advisors. Day recommends the Credit Research Foundation and National Association of Credit Management as resources for small business owners who may be looking for expert advice on business credit and cash advances. Both organizations also have websites with online resources that may be helpful to owners looking for alternate sources of credit. Will you have enough to cover the interest?

Matthew Westenburg, a certified public accountant with Nebraska-based SP Group, says advances are expensive, and that interest can add up with unanticipated speed, even for the merchant who took the time to read the fine print. The factor can range from 1.

However, this product has some advantages. Most cash advances can be obtained quickly, in just days. Given the potential advantages and disadvantages of this solution, consider speaking with an accountant or similar expert to ensure you make the right decision. There are some alternate solutions that can provide funding to small and growing businesses.

Microloans are easier to get than conventional bank financing and do not require good credit. Microloans often come bundled with financial consulting and management workshops, which can be ideal for small business owners. Invoice factoring is a type of financing that can be used by companies that sell products and services to other companies. Commercial sales are often done on net to net day terms , which can create cash flow problems. We are a leading provider of factoring, an effective alternative to merchant cash advances.

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Additionally, cash advances are very expensive. Unless your business has high profit margins, cash advances could wipe out profits temporarily. Perhaps the biggest risk is that you are selling future sales. Merchant cash advances are most often used by retail businesses that do not qualify for regular bank loans and are generally more expensive than bank loans. While not exclusive to merchant cash advances, the Small Business Finance Association and Commercial Finance Coalition are the industry's primary (c)(6) non-profit trade. Merchant cash advances are unsecured cash advances based upon a merchant's volume of credit card charges, Mark Lowenstein, Merchant Cash and Capital's (MCC) marketing director, told BusinessNewsDaily.

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