A merchant cash advance in provides alternative financing to a traditional small-business loan. Merchant cash advance providers say their financing product is not technically a loan. An MCA provider gives you an upfront sum of cash in exchange for a slice of your future sales.
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So, let’s say you’re a small-business owner in need of capital now, and a merchant cash advance looks like a good deal. Before you act, consider this: That quick cash could really cost you.
MCAs have been known to carry annual percentage rates the total cost of a loan, including all fees in the triple digits. These costs, as well as the daily repayment schedule, can cause serious cash-flow problems. In some cases, MCAs can lead to a debt trap, where it’s virtually impossible to repay and you must refinance into another and yet another MCA or file for bankruptcy.
That’s why many consumer advocates and nonprofit lenders consider MCAs a financing option of last resort. Below, we lay out the pros and cons of merchant cash advances to help you make a wise financing choice.
