Responsible borrowing is more than a pledge, it’s our priority…While the Merchant Cash Advance industry is growing and becoming more streamlined just like anything else if you take too much funding, are careless, it can lead to problems.
WARNING:
Merchant cash advances (MCAs) can be a risky and expensive form of financing for small businesses, and it's crucial to understand the potential downsides before pursuing one. While they offer quick access to capital, MCAs often come with high fees, aggressive repayment terms, and can lead to debt cycles.
Merchant cash advances (MCAs) can be a risky and expensive form of financing for small businesses, and it's crucial to understand the potential downsides before pursuing one. While they offer quick access to capital, MCAs often come with high fees, aggressive repayment terms, and can lead to debt cycles.
Here's a breakdown of the key warnings associated with merchant cash advances:
Factor Rates
MCAs use factor rates instead of interest rates, which can be deceptively high when converted to an APR.
Other Fees
Origination fees, administrative fees, and other charges can significantly increase the overall cost.
Repayment based on Sales
Repayments are often a percentage of daily credit/debit card sales, which can fluctuate and make budgeting difficult.
The aggressive repayment structure can trap businesses in a cycle of needing to take out new advances to cover old ones.
Legal and Contractual Risks:
Many MCA agreements include a "confession of judgment" clause, allowing the lender to seize assets or freeze bank accounts without a trial if you default.
Other Risks:
While MCAs may not directly impact credit scores, defaults can lead to legal action and negative consequences for your business.
The daily repayments can strain cash flow, especially during slower business periods.
Unlike traditional loans, businesses can't save money by paying off an MCA early because the fees are fixed.
Therefore, you should only take funding only if you can afford to pay it back.
