How To Use Merchant Cash Advance For Your Business
When small business owners need immediate capital, they often think a merchant cash advance is the best option. However, you should really consider the fact that this fast cash could end up costing you more.
Merchant Cash Advances (MCAs) are known for their ugly debt traps. This type of loan is almost impossible to repay and can force you into filing for bankruptcy. This option of financing should only be used as a short-term solution for cash flow challenges. An MCA capitalizes on future predicted sales in exchange for giving the business owner money upfront. You can get an MCA repayment plan organized in two different ways.
The lender will give you cash upfront in trade for part of your future earnings. You can also get money upfront from the lender by paying fixed weekly payments. These payments will be withdrawn straight from your account. This is process is known as the Automated Clearing House. Direct withdrawal is the most popular form of repayment with MCAs. These are sometimes called an ACH merchant cash advance. This enables funding providers to advertise to more businesses that aren’t mainly secured by credit and debit card sales.
The fee on the MCAs can be very costly. It is determined by your risk factors and your capability to repay the debt. Of course, the higher the interest rate, the greater the fees you will end up paying.
Another repayment option for your MCAs is the fixed daily withdrawals. This type of repayment plan is based on the estimated amount of your monthly returns. This can be a better option for most businesses because no matter what your sales are, the payment remains the same.
It is ultimately up to the business owner on which route he plans to take. A merchant cash advance is one of the quickest ways to get cash, and you can usually have it within the same week that you applied without the headache of hefty paperwork. MCAs are unsecured loans, and you do not need collateral. This is beneficial because you do not have to put up any personal assets to get your loan. However, many small businesses may find that they are better off to go with another form of financing.
If misused, MCAs can become a never-ending debt cycle with hard-to-make repayments, especially if there is an issue with cash flow.