- 1. Cash advances can lead to further debt problems. Unlike a loan, with a merchant cash advance you're returning the advance by selling money your company makes in the future. If your company goes out of business, you are not held accountable for the money owed. Responsible merchant cash advance lenders take on 100% of the risk associated with the loan.
- 2. High interest rates take advantage of struggling businesses. Merchant advances do not use interest. Based on a company's financial profile, which is analyzed by the merchant cash lender, an agreement on returns is made and paid back through a percentage of future credit card sales, not a fixed amount. Essentially, the lender profits from the client's future sales, which have been pre-purchased at a discount.
- 3. Paying back a cash advance can leave the business owner empty-handed. Merchant advances are paid back through an agreed-upon percentage of credit-card sales the company brings in each month. If a business is doing well, the time frame to pay this off might be very short, whereas if a business is struggling, this may take a longer time to pay off. Regardless, since the monthly payback is limited to the agreed upon percentage from credit card sales, there is always income untouched and uncharged for the business.
- 4. Merchant cash advances are a last resort for struggling businesses. Each business owner needs to decide what is right for them, and while merchant advances are an obvious resource for a struggling business that is unable to get a traditional bank loan or line of credit (especially in today's economic climate), they are also often used by successful businesses who prefer the logistics of a merchant cash advance.
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