How do you know whether a merchant cash advance will make sense?
On the one hand, paying off a loan with daily credit card sales can bite into your cash flow more than you might expect.
On the other, you’ll actually repay a smaller amount of money during slower weeks and months—unlike with a term loan, where you’ll either make your payments on time or suffer the late fees.
There are other reasons why some borrowers might want to opt for a merchant cash advance rather than a more traditional business loan.
For one, merchant cash advances come unsecured—meaning you don’t have to offer a valuable piece of collateral in exchange for the loan. This can be a benefit for business owners who don’t want to put something like their personal home or financial assets at risk.
And finally, merchant cash advances are quick. Need cash this week? A merchant cash advance can probably be approved by then.
These two advantages correlate with high costs, though. So when it comes down to it, it’s up to you to understand your business’s financials. Just remember that a merchant cash advance is the most expensive financing option you could pick.