What you Need to Know about Merchant Cash Advances

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Hi, this is Judi and we’re continuing our series on Non-traditional Business Financing today.

Today, I want to talk about merchant cash advances. You may or may not have heard of these. They’re a little bit obscure but they’re typically used by companies that do a lot of transactions either by credit card or debit card.

The way that they work is that you get your money very quickly and then the financer will take a percentage or a fixed amount from your credit and debit card sales every day. If you don’t have high enough sales, they may take direct withdrawals out of your bank account.

So there are some pros to this. They’re very, very fast. You can get your money within a day or two or three days. You really don’t require a good credit score or any collateral.

Now, of course, with those pros, there are cons. They’re very expensive, and they can be, by the time you’re all set and through upwards of 30% – 35% on an annual rate. This also eats away at your future cash flow. So this is something to be used if you’re really desperate. You know, if this is a last resort as is the factoring that I talked about yesterday, that’s a little bit less expensive, but it can also get very expensive. That is also a last resort thing.

Now, next week I am going to talk about an option that is a great option if you’re somebody that maybe doesn’t have the greatest credit score or doesn’t have a long time in business or for whatever other reasons isn’t necessarily bankable. So, tune in for that one. I’m not going to give you any more hints on that, but I’ll see you next week where we’ll share a new Fiscal Fitness Tip of the Week.