Merchant Cash Advance: A Wolf In Sheep’s Clothing?

The world of online lending and financial technology (FinTech) is vast. Slick, colorful websites detail in easy-to-understand flowcharts how their financing tool can provide fast cash for your business. You’ll see new words for age-old loan concepts you’re familiar with. Sometimes the product itself is just renamed. Take for instance the merchant cash advance (MCA). This financial solution has been around for years. MCAs have seen a resurgence for a number of reasons, none of which benefit you, the customer.

Sometimes a MCA is called business financing, a term loan, a working capital loan or a business loan. But take a close look at the specifics, and you’ll see a hidden MCA. While a MCA may be the right option for a limited number of cash flow hurdles, be sure to take a hard look at the product before deciding it is right for you. A MCA is the equivalent of a payday loan for businesses. What’s so bad about giving your business a payday loan?

First, MCAs are expensive! It’s right in the name: merchant cash advance. This isn’t a loan; it’s an advance. This means repayment terms are not regulated like loan payments are. Along with a traditionally high interest rate, there are typically other fees associated with MCAs. Look for maintenance fees, usage fees, origination fees, monthly fees, etc. that pile costs over and above the interest rate. Also, repayment is usually calculated weekly, or daily, and is often an automatic withdrawal from your bank account.

Next, ask yourself, “Will this cash advance truly solve my problem, or is it just a band-aid?” Band-aids hurt when you rip them off! If you don’t look at your long-term needs and goals, MCAs can cause your business a lot of pain. If your business is faced with a cash flow issue, there are better and more economical solutions out there.

So why are they so prevalent? Well, the online marketplace may have a lot to do with that. A company can set up shop with a pretty website that makes the product and process look effortless; it just makes the whole shebang too easy! “It’s as simple as 1, 2, 3 and you have cash in your account!” The complicated part is hidden—expensive fees, high interest rates and short-term results. This is your business, your economic future. Do your homework and don’t be blinded by a bright, shiny object that seems too good to be true.

If cash flow is the problem you are trying to solve, take a look at factoring.

Our product has been around for many years too and works differently from an advance or a loan. If your company has receivables (invoices), it’s probably eligible. With factoring, you sell your receivables for immediate cash. You don’t have to worry about waiting 30, 60 or 90 days for your customer to pay after you have delivered. Within 24 hours of submitting your invoice, you have cash! The fee is taken out of the total invoice amount, so you never have anything to repay. Your credit score will not be negatively impacted, as this is not a loan. In fact, due to improved cash flow, you may even see improvement in your credit score.

Porter Capital has been offering factoring to businesses across the US since 1991. Our approach is simple and honest with no surprises. Our goal is to provide you with fast, personalized service with the flexibility to help your business thrive and grow. We provide Working Capital Overnight and we would love the opportunity to discuss your needs and evaluate if factoring would be a good fit for you. Call us at 1-800-737-7344, or fill out the form below to see if invoice factorign is the right fit for your business.

Does your business have outstanding invoices? Fill out this form to see how we can help.