If you run a business and need more cash flow than you currently have, you may benefit from a merchant cash advance. However, there are certain things you should consider before deciding on this type of loan. Although there are many benefits from securing a merchant cash advance, there are also pitfalls that you should be aware of before you decide to pursue this type of funding.
What is a Merchant Cash Advance?
A merchant cash advance is short-term funding for businesses. This type of funding is beneficial to businesses that need cash quickly and who may not have the time, credit, or resources to secure a traditional loan. An MCA can be secured within a few days, or less than a week, and doesn’t require as much as a conventional loan would require to qualify. Usually, a business owner need not produce more than bank statements from a few months of sales and government identification to establish eligibility.
However, business owners should keep in mind that the and convenience of an MCA comes at a cost. This is high-interest short-term funding that comes due within a short period. Also, these aren’t exactly short-term loans because the cash expended is subtracted from the amount of the loan as you use it.
For example, you may receive an MCA for $100k and immediately use part of the funds to purchase equipment totaling $20k. The purchase of your business equipment is deducted from the $100k leaving you with $80k available to spend. Plus, you are required to make payments on the MCA while you have it. This is why an MCA is a serious consideration that should only be pursued if you have the sales to pay off the loan, plus the interest, without creating more debt for your business.
Aspen Capital Solutions provides MCAs and other working capital programs to businesses nationwide. If you need an infusion of debt-free capital for your business, contact our team today.