Why You Should Avoid Taking Out a Merchant Cash Loan
by Leeia Ladipoh on April 24th, 2008
In the same way that people get into financial tough spots, so do businesses. In many cases, the solution for the business is taking out a merchant cash loan. A merchant cash loan is basically the same thing as a payday loan.
When a business gets into financial trouble, they can contact a merchant cash advance provider, or MCA. Getting these loans is easy and you do not need collateral to get them, as you do with banks.
Why Business Owners Resort to MCAs
The reason most business owners go to a MCA is that they cannot get a loan at a bank. A business can borrow up to $150,000 dollars and agree to pay it back – for a loan fee of 25% or more. These loans are paid back to the MCA provider, which takes small portions of the business’ credit card sales until the loan has been paid in full.
Repayment usually takes about six months.
A merchant cash advance loan should only be considered if there is absolutely no other option . That 25 percent or more that you have to pay back in fees could be better spent helping you increase your business’ profits.
The High Cost of Repayment
In the event that the loan does not help and the company goes out of business, the merchant cash advance provider has no recourse as long as the business owner clearly followed the terms of the contract.
If a merchant cash advance provider feels that their contract has been broken, then they can take whatever action they feel is necessary to get their money. Often that even includes taking the business owner to court.
This is yet another reason that taking out a merchant cash loan is not the best idea. As a small business owner, your goal is to stay out of court -not get dragged into one.
Modern MCAs – Making a Killing at Your Expense
A decade ago, there was only one merchant cash advance provider. It was called AdvanceMe. They only lent approximately $10 million dollars a year. Now there are MCAs all around the world, and they lend out over $700 million dollars a year, on average.
Choose Carefully
> Before making this decision, weigh all of your options:
> Is there any other place you can get the money?
> Do you have any family and friends that can help?
> What are you taking out this money for?
> Will this loan considerably increase your bottom line?
> Can you run your business without it until you can afford it?
> If the cash advance is for making a purchase, is it necessary that you get the money right now?
A Last Resort
If you have tried every other resource possible, and nothing has worked, then and only then should you consider going to a merchant cash advance provider. The most important thing to consider as you take this step is to make sure you can afford the regular payments.
Merchant cash advances can be a good thing to have, but only if you are in an especially tough spot. When you are having trouble paying the bills, or need to expand your business in a pinch, this can be the money that saves the day.
If you decide to go the MCA route, remember to read the contract carefully. A merchant cash advance is not an advance you get just because you need some extra cash.