February 19, 2018

3 Myths About Merchant Cash Advances

Myth #1: Merchant Cash Advances are Loans

Although the process of acquiring a business loan and merchant cash advance are similar, they aren’t the same product. In fact, business loans require a longer commitment with a fixed repayment schedule. In comparison, cash advances are remitted based on a set percentage of your business's daily or weekly credit card sales. Instead of adhering to a fixed schedule, merchant cash advance borrowers remit the funder whenever they receive a credit card payment. Thus, this product is like an advance on future credit card payments. Cash advances are more beneficial than loans for businesses who need financial flexibility. They can fulfill their obligations based on the amount they are paid. With a loan, you’re expected to make set payments, which can cause financial stress if you don’t have enough money on-hand.

Myth #2: Merchant Cash Advances Have High-Interest Rates

Merchant cash advance options are typically based on your business’s sales volume, projected income, and the funder’s requirements. In addition, providers typically don't charge interest rates because merchant cash advances aren't loans. Instead, they expect anywhere from 5 to 20 percent of your future credit card sales. After being approved for a cash advance, the funder should explain when you’ll receive the funds, and how much you’ll be expected to remit. This sort of transparency is very dissimilar to “loan shark” practices. In fact, most funders won't make you an offer unless they are very confident that you can remit a cash advance responsibly.

Myth #3: Only Desperate Businesses Apply for Cash Advances

For whatever reason, people assume that only failing businesses pursue cash advances. In reality, it's quite the opposite. With 63-80 percent rejection rates, traditional loans aren't always accessible to small businesses. When a business applies for a cash advance, they likely require quick working capital. Therefore, a business utilizing a cash advance shows confidence in its ability to use a cash influx to boost revenues!

Is a Merchant Cash Advance Right for Your Business?

Only you can determine whether a merchant cash advance is right for your business. Before you decide, it's important to understand the truth behind rumors you've heard about cash advances. Arm yourself with knowledge, and use it to boost your business's revenues!