Merchant Cash Advances for Small Businesses: 4 Signs of a Bad One | Behalf
4 Signs of a Bad Merchant Cash Advance
Considering a merchant cash advance to finance your business? First, READ THIS. Merchant cash advances have developed a reputation as financial wolves in sheep’s clothing, but they aren’t all bad. There are exceptions to the rule and it’s important that you recognize them to avoid a scam. Many merchant cash advances draw against your future credit card and debit sales, bleeding your capital reserve dry. When it comes to merchant cash advances, you MUST read the fine print in order to separate the heroes from the villains. This article details 4 signs that a merchant cash advance would do more harm than good to your business:
Choosing a merchant cash advance with a high interest rate can consequently leave your business dependent. It can stunt the growth of your business by drying up your capital reserve and putting more pressure on your working capital. Over time, your business would become less able to cover operational costs and struggle to pay immediate expenses. Naturally, you would seek out more financing; therein lies the problem. The wrong merchant cash advance will leave you spinning down a spiral of debt.
2. Drains Cash Flow and Weakens Bottom Line
The constant draining of funds that a bad merchant cash advance inflicts on your cash flow could have devastating consequences. Aggressive merchant cash advance providers take out their money before you get the chance to even appreciate your sales. By interfering in your cash flow, they distort the results of your business performance making it hard to know your actual revenue, profits, etc.
3. Preys on the Weak
The wrong merchant cash advance lender baits small, weak businesses. They advertise that they do not check credit history only your history of credit card transactions, in order to attract desperate businesses. They even trick healthy small businesses into thinking they don’t have any other financing options. In contrast, legitimate cash advance lenders require more evidence of creditworthiness before they extend their services. They understand that their cash works best for healthy small businesses.
A merchant cash advance is a quick fix for your business financial woes, but the wrong one can be fatal. You want to finance your business so it can eventually stand on its own two feet, not stay on life support.