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Chris Bell

What are the pros and cons of a merchant cash advance for your business?

As an entrepreneur in the UK you have access to a variety of funding options when you want to start your business up, expand, or work on a new project/concept. While there is a plethora of funding options available to you, not all of them are ideal for your financial situation. In fact, some might even jeopardize the growth of your business, especially during tough economic times. For this reason, many people opt for a merchant cash advance in the UK.

Investigating the various types of funding available to you is a good idea. According to Business Debtline, in 2016 they assisted 20,860 people via telephone and 3.731 people via online chat and 132,462 people via their website with business related debt. This is an indication of how many businesses in the UK have unwittingly got into debt. Avoid being a part of the statistic by fully understanding the type of debt you are getting yourself into, before you go ahead.

Before you jump at the opportunity to get a merchant cash advance, take a moment to consider if you really know what you are getting yourself into. Is a merchant cash advance really the best choice for you and your business and what are the expected pros and cons attached to such a “product”?

The pros of a merchant cash advance

When it comes to a merchant cash advance, UK businesses can expect the following pros and benefits:

  • Quick funding.

    Businesses that need a cash injection in a hurry don’t have to wait around for funding. Most merchant cash advances are paid out within 24 hours.
  • Qualify with bad credit.

Most people stress out when they do a personal credit check and find that they have a bad credit score. You can do a credit check with Experian here. Merchant cash advance repayments are based on your future card sales. Because of this, people with a less than perfect credit score can still apply and qualify for a merchant cash advance.

  • No collateral required.

Merchant cash advances are unsecured loans, meaning that applicants don’t need a co-signatory or collateral to qualify for the loan.

  • Flexible repayments that wax and wane with the business income.

There are no fixed monthly repayments on a merchant cash advance. Instead, every time a customer pays with a credit card or debit card; a percentage of that sale goes to the merchant cash advance lender. This means that in times of a tough economy when sales are minimal, so are your loan repayments.

The cons of a merchant cash advance

If you are considering a merchant cash advance for your business, here are the possible cons and downsides of such a funding option:

  • Expensive form of funding.

While merchant cash advances are easy to qualify for and convenient to repay; they are considered an expensive form of funding. The APR attached to a merchant cash advance is typically quite high.

  • Loss of business control.

    Some lenders will only grant the merchant cash advance if the business agrees to operate under certain guidelines. These guidelines could be that the company cannot encourage cash or EFT payments from customers. Some guidelines could even dictate opening hours during specific periods of the year. These can differ from one lender to the next, but can be quite limiting on a business in the long run.
  • Refinancing a merchant cash advance is hard or impossible.

Unlike a regular loan that can be refinanced, a merchant cash advance is tricky and sometimes impossible to refinance.  This is because your current loan repayments are tied up in future credit and debit card sales.

Last Word As you can see, a merchant cash advance comes with both pros and cons attached. If you are fully aware of what both the pros and cons are, you can enter into such an agreement with confidence. Whether you choose to go with a merchant cash advance or not, approach your funding options with caution and with understanding to protect both you and your business.