The great news is that the factor rate of merchant cash advances continues to come down. A merchant cash advance is like a loan, but based on your businesses future sales. The industry is unregulated so the advances are made much quicker without all the paperwork, and financials. The advances are unsecured. Those are the advantages.
The disadvantage is that the factor rate is higher than a bank loan interest rate. Only a few years ago, the factor rate was around 1.35. Now, the factor rates have come down through market competition. It is possible to get a 3 month advance at 1.1299 factor. A ten thousand dollar advance would cost ($10,000 x 1.1299) = $1299. That’s not too bad and also in line with a high interest loan or credit card interest rates.
A good bit of advice is to explore your financing options and choose those that are the least costly in the short and long term. Please remember that bank loans have low interest rates, but those low interests come with risk. Usually these loans are securitized. If you default, then the bank can seize your assets. This is not the case with a merchant cash advance. Merchant Cash Advances are unsecured. Bank loans can take a long time to close. Do you have that time to wait? Or do you need money today? What happens if you get into a cash flow pinch? In most cases, a bank loan won’t help you in time. This is why you need a line of credit, even if you don’t plan on using it. It’s worth it to pay a few hundred dollars to have access to thousands of dollars. Again, if you can’t get a line of credit, then you need to speak to a merchant cash advance company. It is better to talk to them when you are not in need than when you are. In this way, you can better negotiate an optimal deal. Then you can put their offer in the drawer. When you happen to need the advance, you can give the cash advance company a call and get your money quickly on your terms.
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