Statistically, nearly half of all new businesses fail within their first five years. While the specific details may differ, the common issue is that they all simply ran out of money before they could grow the company to the point of being sustainable.
If your small business is in danger of becoming a statistic, and you’ve been unable to secure financing from traditional banks and other sources, you might be considering a large cash advance. But before you commit to that option, consider these pros and cons of merchant cash advances.
Pros of Merchant Cash Advances
Easy to Qualify: Qualifying for merchant cash advances is very easy compared to many other types of financing from traditional banks and lenders. Having bad credit isn’t going to automatically disqualify you from qualifying. If you have steady credit card and debit card sales coming in every week, then you have a good chance to qualify.
Get Lots of Cash Fast: The amount you can qualify for will be mostly based on your credit card sales over the last several months. Depending on those figures, you might qualify for $50k to $100k or more.
No Collateral Needed: Unlike most business loans and financing products in this dollar range, you are unlikely to need to put up collateral to qualify. It’s mostly based on your sales record.
No Large Monthly Payments: A merchant cash advance doesn’t require monthly payments. Instead, a cut of your daily credit card sales is taken automatically, so you don’t need to set aside a large amount of cash every month to pay your bill.
Cons of Merchant Cash Advances
Expensive to Pay Off: Because of the high cost of this type of financing option, it could take a long time to pay off. And the total costs of paying off your advance will be higher than other types of financing. Many financial advisors consider this product to be a last resort.
Daily Payments Can Limit Cash Flow: While there are no large monthly payments, the daily payments can take their toll on your cash flow, making it difficult to pay other operating costs if sales slow down.
Paying Off Early Won’t Lower Costs: Since the amount you need to pay back is based on a factor rate (basically a fixed percentage of the amount borrowed), there is no extra benefit to paying your balance off early.
If your business is in need of financing and you would like to explore merchant cash advances – or their alternatives – contact BT84 Commercial Capital & Business Solutions to see what options are available.