Merchant Advance Cash Pros and Cons

You wake up in the middle of the night to get a call from the guy who runs the convenience store across the street from your sushi bar: your place is going up in flames. Even though you can’t do a lot but watch the firefighters put out the blaze, you still throw on some clothes and hurry down to the spot because this is your business, these are your dreams that are at risk. You have the place properly insured, but you know that there’s still going to be a slowdown while things get put back together.

Merchant Cash Advance Info: Pros and Cons

Then you start thinking about that gourmet Chinese restaurant a few blocks over that just went under – you just saw the “For Lease” signs in the window last week. It’s bigger, it’s closer to an area that is gentrifying, and you think it could be the perfect opportunity for you. However, you know the rent is going to be higher, and you will have to hire some more wait staff to keep the service level where you want it. The insurance will cover your costs with the building and give you some money to replace the income the restaurant was bringing in.

So the next morning, you’re in the office at your bank. You’ve had your own checking account there since you finished high school and left home, and you’ve had your restaurant’s accounts there too, so it seems like the natural place to talk about a loan. However, since your sushi bar has only been open for a little over a year, even though it’s been doing really well, the bank doesn’t want to help out a restaurant that has not been open that long and now is going to have to go through the expense of a move. Even with the insurance money coming in, the bank sees you as too much of a risk, and you walk out the door a lot less satisfied with your customer service experience than you were when you walked in.

Situations like this are why merchant cash advances came about in the first place. They offer high approval rates and bring you the money within a few business days. However, they cost you more than a bank loan will, so there are drawbacks to go with the advantages. Let’s take a look at what a merchant cash advance has to offer – and why you should think twice before taking one out.

Benefits of a merchant cash advance

Merchant loans review

Pro: You get your money quickly. Banks make you wait several weeks for approval on a loan. With a merchant cash advance, all the lender has to look at is your bank statements and your credit card income receipts, so you can get approval (and funding) within a few business days.

Con: Your APR could be high. Once you roll in all the fees and interest, you could be looking at an APR between 30% and 300%, depending on the lender, how much money you are taking out, the amount of time they plan for you to repay, and depending on your own risk factors (amount of time open as a business, for example). Business credit cards (12.9 – 29.9% APR) and online small business loans (7% – 108% APR) are often available for less.

Pro: Your payments aren’t fixed. You don’t face a monthly minimum payment on this sort of loan. Instead, you pay a percentage of your credit and debit card sales each day. That means that you don’t have a big check to write, whether you have the funds or not. Instead, when you have a strong sales day, you make a larger payment. When you have a slow day, you still get the same percentage of your sales that you would have on the big day.

Con: There is rarely no benefit to early prepayment. When you sign the agreement, your repayment amount (which includes interest) is set. This is different from a loan that allows you to pay extra principal with each fixed payment when things are flush.

Advantages of a Merchant Cash Advance

Bottom line? If you have a strategic plan to put a merchant cash advance to work for you, it can be the boost of cash that could be a huge advantage for your business. After all, if you move into that new space and business doubles, will you really begrudge those payments you had to make? Absolutely not. If you think Merchant Cash might be a big advantage for your own business, give Amansad Financial a call today.