Regarding Merchant Cash Advance Services

Are you a small business owner who is having trouble meeting your payroll, buying equipment or paying your taxes? Would you like to increase your advertising to grow your business? If so, you may be tempted by a merchant cash advance. Here's how a merchant cash advance works. You submit 3-6 months of your credit card processing statements to the lender, who averages them and usually advances you the equivalent of 110% of one month's receipts. You repay the advance by switching your credit card processing to the lender who withholds a percent of your receipts each day to repay the advance. As you repay, the funds become available again.

This quick cash method looks good on the surface. You don't have to go through traditional lenders, who may require good credit and collateral. In addition, the lenders do not report these advances to any credit bureau. These features may have great appeal, but let's take a closer look. First, how did you select your current credit card processor? You probably did a lot of research to find the lowest equipment cost and fees and the fastest use of your money. Beware of hidden charges when considering a switch to the lender's credit card processing. Also be aware that the lender may hold your receipts for 2-5 business days while your current processor may deposit them the next day. Next, consider how you will be able to manage in the future without a percentage of your credit card receipts, usually 15-25% plus fees. This is the percent of your receipts the lender will keep, not the interest rate which may reach 144% APR! Of course you will have an initial influx of cash from the advance, but once it is gone, will you be bound in an endless cycle of debt?

The merchant advance companies state that 65-75% of their customers come back to borrow again, citing this as evidence that their customers are satisfied. Is that what this statistic actually proves? Or does it indicate that 65-75% of borrowers have become dependent on cash advances? The merchant cash advance industry is part of the vast underbelly of lending which includes individual payday loans, other types of cash advances and tax refund anticipation loans, all of which have exorbitant APRs. Because an advance is not considered a loan, you will not have the protection of government oversight and regulation that keeps the lending industry honest. So, let's be realistic. If you apply for a merchant advance will you really grow your business and solve your future financial problems? Or will you lose your current credit card processor, pay high fees and interest, and end up on the treadmill of endless debt? You be the judge.