Breaking the Myths about Merchant Cash Advances

Chances are that if you have considered getting a small business loan and have done some research; you have heard the term "merchant cash advance".

Do you know what a merchant cash advance is? I’ll give you a brief description;

A merchant cash advance is when a business owner is advanced a cash sum -- usually between $5K and $500K - often within a week and without the amount of paperwork required by banks. The merchant agrees to pay back the principal plus a fee. The merchant cash advance provider collects the money by taking a portion of the business's credit card sales until the debt is paid off.

Merchant cash advance providers offer companies with few financing options a quick, easy way to find funds. Some entrepreneurs like the arrangement because it allows them to repay less when sales are slow and more when revenue picks up. However, it is typically a more expensive form of financing and most business owners are scheduled to complete repayment within six to nine months.

Myth number one: A merchant cash advance is like a payday loan.

While a both give you cash based upon your future revenue, the similarities stop there. A payday loan advances you the money with the agreement that it is to be paid back within two weeks. If you are over extended; this can become a real burden. With a merchant cash advance, a small portion of your businesses credit card sales are used to pay back the advance over the course of six to nine months. This is significant because a reputable merchant cash advance provider will work with you to set up a payment structure that does not become a burden on your business.

Myth number two: All merchant cash advance providers are unscrupulous.

You will find some less than desirable business practices in any business - particularly when dealing with money. As with any businesses; there are good companies and bad. What these bad companies don’t seem to understand is that it is always best to create long term relationships with your customers. Many MCA providers do understand this and have been in business for many years without any complaints. It is very common for a small business owner to keep coming back to their MCA provider again and again. There are many companies offering merchant loans. Some are reputable and some are not so reputable. Make sure you do yourself a favor and take the time to research the company before you do business with them. The Better Business Bureau is a great place to start.

Myth number three: A merchant cash advance is expensive.

Actually that is not a myth. A merchant cash advance is expensive compared to a small business loan. But if your business has been turned down by the bank, or if you cannot wait several weeks to get the cash; a merchant cash advance can be an effective source for much needed capital to turn your business around.

Myth number four: If you don’t pay back the loan they are going to take your house.

One of the reasons a merchant cash advance is more expensive than a traditional loan is that there are a lot of inherent risks involved. Especially with so many businesses failing in today’s economy. Most MCA providers don’t require any form of collateral, so if for whatever reason your business defaults; a MCA provider has very little recourse.

Myth number 5: They are going to force my business to use a sub par processor at an inflated rate.

Although it is often necessary for you change credit card processors to enable the payback process; a reputable MCA provider will only use the best, most reliable credit card processers on the market. Companies like easy merchant cash advance will either meet or beat the cost of your current processor.

If you are considering sources to fund your small business, I would suggest weighing your options with an open mind and take the time to do your own research and to speak with the professionals in their prospective fields.