As with most things in life sometimes we need a little help every now and then. Your business being no exception. Sometimes you don’t have the financial resources to support or launch your amazing ideas and that’s when you are presented with a few different options. 1. You can ask your rich Uncle Joe for some cash, 2. You can risk your life and rob a bank or 3. You can look to get a business cash advance from an alternative lender.
So with that in mind, let’s look at the good and the not-so-good aspects of a merchant cash advance.
- There is no fixed monthly repayment along with no interest rate or particular date when the advance needs to be paid off by, unlike bank loans.
- Another great thing to consider is that there is no collateral requirement, meaning if your business fails and full repayment for the money taken in advance is not made, your assets are not at risk. This is a gives peace of mind and actually, if your business fails and you have not fully repaid your advance, there are no legal obligations.
- You may wonder how repayment is then worked out. This happens on an automatic basis through your credit card transactions. So, what’s great is that there’s no chance of late charges being accrues from late due dates which happens quite often in bank loans.
- Your funds are made available to you within 24 – 48 hours which is perfect for businesses looking for a quick cash injection.
- Probably the biggest advantage is that there is little to none paperwork.
Banks have a history of becoming particularly picky and enforcing stringent requirements when it comes to lending to small businesses .So given such a tight credit market, smaller businesses have sought out alternative lending providers to get the cash they desperately need.
- There is however a catch (you saw that coming, didn’t you?). Business cash advances are quite significantly costlier than a traditional financing lender such as a bank. This is because these advances are not actually considered “loans”, but rather encompass the buying and selling of future income. The firms providing the financing don’t have to follow typical regulations of interest rates because the advance is never for longer than a year.
- But don’t be fooled by the “interest free” appeal because you are still paying rates which are much higher than traditional interest rates. The reason this is so, is because unlike banks, your business cash advance fee is calculated at a fixed amount and not on a decreasing ‘amount owing’.
Always be cautious and do thorough investigation of the alternative lender you are looking to go into business with. The fact that these lenders are not regulated by the federal government means that corrupt practices tend to rear their ugly heads every now and again.