When you need money for your small business, it may be tempting to take a merchant cash advance, or an advance of money against your future credit card sales.
Merchant cash advances are offered by businesses like eData Capital and PayPal Working Capital. These cash advances work like more like payday loans instead of traditional loans. This means you’re charged a financing fee up front instead of an interest rate. If you were to calculate the interest rate on a merchant cash advance using the financing fee, it will typically be much higher than a business loan.
The advantage of merchant cash advances is approval is based on sales volume versus your credit rating. Repayments are also a percentage of sales, as opposed to a fixed monthly or weekly payment. It’s a great option for those who need liquidity but can’t get approved for a business loan.
Merchant cash advance companies typically place a UCC lien on the advance, so if you default, they can take your business and/or assets. Read the terms carefully before signing.
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