The Ins and Outs of Merchant Cash Advances

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Merchant cash advance providers cater to small businesses that need quick access to capital. While this seems like a great idea, there of course is a catch: Interest on these cash advances can be as much as 30%. These rates seem high, and there is actually a way to where they can charge these high interest rates without attracting attention.

Merchant cash advance companies take pains to point out that advances are not loans; instead, the deal is a “purchase and sale of future income”. That means that laws that regulate lenders and limit interest rates do not bind merchant cash advances. Instead of requiring regular fixed payments, they directly collect a set percentage out of a merchant’s daily credit card sales until they recover the advance and their premium, usually in fewer than 12 months. At times, these are the only option for new businesses, or businesses whose owners have poor credit or a bankruptcy. Banks are hesitant to lend to business owners under these circumstances, and merchant cash advance companies are a welcome relief, despite their interest rates.

Every industry has bad eggs, Industry leaders say they are trying to promote best practices to avoid attracting regulators’ attention. However, thanks to high interest rates, and the ways that cash advance companies get around the interest regulations, these companies are used to being on high alert for audits and investigations. However, the majority of these businesses are looking out for you, the business owner, and are not out to operate a scam.

There are different programs out there for the business owners and some due diligence on your part could steer you in the right direction. For example if you do not want a percentage of your daily sales held back or your current merchant processing tampered with, then you do not need a merchant cash advance. There are small business loans with payback factor rates a lot cheaper than merchant cash advances, if you have the credit to afford it. Regardless of the method you choose to help fund your capital, be sure to thoroughly research your options, as making the wrong choice could greatly impact your business.

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