Merchant Cash Advance

by Gerri Detweiler


These are not loans, but, as the name indicates, are a business cash advance. The funding provider gets paid back by taking a portion of your future credit card sales each day. You can usually get approved in a day or two—with very little paperwork. But you’ll pay for this convenience in very high interest rates. Because this option is so expensive, it should only be used if you’re desperate or want to take advantage of short-term opportunity that requires fast cash. You don’t want to get in habit of relying on merchant cash advances since its higher cost can make it very difficult to manage future cash flow.

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What You Need to Know About Merchant Cash Advances

Pros: Cons:
Fast access to cash Very, very expensive (70% – 200% APR)
Flexible repayment terms Minimum daily payment hurts cash flow
Strong credit not required Doesn’t help build business credit
You choose how to use May lock-in merchant processor
No collateral required Must accept credit cards

 

Best Uses for Merchant Cash Advances:

  • Temporary cash flow help
  • Purchasing inventory at deep discount
  • Unplanned expenses
  • Paying other debts due

Nav’s verdict:

Proceed with caution! If you don’t qualify for other financing because of bad credit, merchant cash advances could help. But you should only be desperate or have a plan for how it will increase revenues more than the cost. This should strictly be a short-term solution. Make sure you calculate the true cost of the advance. The details can be tricky.

Merchant Cash Advance Offers

Business Cash Advance by Rapid Finance

Rapid Finance is one of the largest merchant cash advance providers. Like all MCA providers, Learn More

Business Cash Advance by Credibly

Nominated as the “Fastest Merchant Cash Advance” by Fit Small Business, Credibly combines big data Learn More
View More Offers
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About Author

Gerri Detweiler

Gerri Detweiler

Credit expert Gerri Detweiler is education director for Nav. She has more than three decades of experience in consumer credit education, has been interviewed in more than 3500 news stories, and answered over 10,000 credit questions online. Her articles have been widely syndicated on sites such as MSN, Forbes, and MarketWatch. She is the author or coauthor of five books, including Finance Your Own Business: Get on the Financing Fast Track. She has testified before Congress on consumer credit legislation.