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Merchant Cash Advance, Friend or Foe?

In recent years, the merchant cash advance has become a popular business funding option. However, it doesn’t always have the best reputation and is often misunderstood. Those curious about what options they have wonder if the merchant cash advance is something to run away from, or something to run to?

MCAs provide much-needed cash

One reason businesses shy away from merchant cash advances is for fear of the cost. It’s true that most cash advances will involve higher interest rates than the average small business loan. However, the world of alternative lenders and cash advances continues to evolve. These alternative lenders – like First American Merchant – are constantly improving their network, fees and processes to suit the unique needs of merchants.

In the words of SOS Capital Founder and CEO David Obstfeld, “As the industry becomes more competitive, everyone is going to lower their rates”.

For many business owners, the speed in which they can obtain cash is a welcome change from the lengthy, complicated process of a small business loan. With First American Merchant, for example, merchants can receive funds in as little as 72 hours.

How does it work?

A merchant cash advance is not a loan or a high interest advance – it is sale. The alternative lender quickly provides the business with working capital, and then purchases its future credit card sales at a discount (both parties agree to the amount of sales, and at what discounted cost). The collections process is also straightforward; payment is simply a percentage of the business’ daily sales. This means when business is good, you’ll pay back more. When you experience slow periods, your business pays back less. Ultimately, this provides much needed flexibility for your business.

Who uses cash advances the most?

Merchant cash advances can benefit and are easily secured by many business types and industries. The merchants that tend to utilize cash advances the most are startups (limited time in business), small businesses, those considered to be “high risk” and those with bad credit. The number of businesses that are pleased and prefer their experience with an alternative lender over the traditional lender continues to increase with each year that passes.

The next time your business finds itself in a tight cash flow situation, don’t forget to add a merchant cash advance to your list of options. This type of financing may prove to be more helpful than you initially thought.