Merchant Cash Advance Services May Not Be All They Appear

The whole premise of merchant cash advances is to give a business owner more flexibility and access to needed funds easily and in a short period of time. On the whole, there is nothing wrong with the idea of merchant cash advances, but the terms of the agreement and system that is implemented may make a business owner think twice.

Small and medium concerns are the primary type of business that is targeted for merchant cash advance programs. Cash advance companies give business owners the impression that it is a simple process, there are no negatives and that it is in their best interest to go the cash advance route instead of other avenues available. The first tantalizing bone the cash advance companies throw out is that it is easier to obtain a loan with the program then it is at a bank and that the cash advance companies do not charge outrageous fees -as they imply banks do. The truth of the matter is, depending on the company approving the cash advance, the cash advance company will receive anywhere from 10% - 36% of the 18% of daily receipts they are collecting from the business owner. Therefore, if you have cash advance of $100,000, and your daily receipts averaging $500.00, the cash advance company will take $90.00 that day. If the terms are heavy and the cash advance company's policy is 36% to them, which means $57.60 will go towards repayment of your cash advance that day. At that rate, it will take the business owner four years to payoff the loan, the monthly payment on the loan will be $2700.00 a month and the majority of that $2700.00 going to the cash advance company. The merchant cash advance company may have no upfront hidden fees, but that is because the fees are hidden in the repayment.

The second attribute merchant cash advance companies tote is the quickness of the availability of the funds. The same fast response if not faster, is available with a business credit card or a line of credit with the bank your business checking account is presently opened. Yes, there will be interest to pay, but it won't be as extreme as a cash advance and if the business can afford to make an 18% revenue payment daily to the cash advance company, the business can just as easily do it with a credit card or financial institution. The benefit of that unlike the merchant cash advance company, the business’ credit rating will become stronger.

The final promise the merchant cash advance company will make is that the business will not have to change credit card processors. Not only is this not often true, sometimes it is done without explicit explanation and disclosure. The switch is easily done because in order for the merchant cash advance company to take their share of the business’ receipts, they have to have the make, model and serial number of your credit card machine, along with the financial information of the business owner. Additionally, the merchant cash advance company needs to know who currently processes the business’ credit/debit card payments. If the card service is not on cash advance companies’ list of processors, the business will need to switch to make the advance possible. If the business owner does not switch, they can and will take it upon themselves to change your processor because often there is a clause in the cash advance contract that stipulates the cash advance company must be able to arrange receipt of their payment prior to the business owner receiving theirs. What is often not openly disclosed is that whatever fee agreement the business has with your present processor will likely not be matched by the new 'approved' processing company, and many times it is not a better deal.

The other switch these some merchant cash advance companies have been found to do is to switch a business’ processor right before or at the time the cash advance loan has been fully paid. The merchant cash advance company tracks a business’ receipts so the cash advance company knows the opportune time to approach a targeted business about another advance. There is also the fact that for each customer they bring to an 'approved' processor, they receive a referral fee.

The bottom line is merchant cash advance companies are a business. They are not faulted for making a profit, but some feel that they may be pushing and blurring the lines of predatory lending. If a business is considering a merchant cash advance program they should:

Read the full agreement, including all the fine print. Compare what the business will actually being paying to the cash advance company as opposed to opening a line of credit or credit card. Investigate the company proposing the merchant cash advance for complaints from dissatisfied customers. Don't allow someone to change processors without understanding all of the costs and rates from the new processor. Proceed with caution!