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When your business is growing quickly, you need capital. Many small business owners look to merchant cash advances to sustain and grow an expanding business. In contrast to traditional business loans, which have a fixed interest rate and require you to make the same minimum payment each month, merchant cash advances collect a portion of your business’s monthly credit card sales.

The promise of easy, fast approval offered by merchant cash advances is attractive, but they are certainly not without their drawbacks. To find out if a cash advance is right for you, consider the advantages and disadvantages for your business.

Advantages of a Merchant Cash Advance

Merchant cash advances are quick and easy to obtain, and can be easier to repay when your sales are low.

Easy Application

You can easily apply for a merchant cash advance online, without the need to fill out and deliver lengthy paperwork.

Fast Approval

Traditional business loans can take weeks to process. If your business is in need of quick cash, waiting for a traditional loan can cause serious problems for your business. In this case, a cash advance can offer you fast access to capital – sometimes within just hours of applying online.

High Approval Rates

If you have been denied traditional loans, or have poor credit or no collateral, a merchant cash advance may be your go-to option. Because you will repay your cash advance with your future sales, the most important criterion for your approval is your company’s past sales. Most companies offering this type of financing have high approval rates, with little consideration for bad credit and no requirement of collateral.

Repayment Varies with Sales

If your sales are slow in the beginning, it might be difficult to meet a large monthly loan payment. With merchant cash advances, the repayment is based on a percentage of your credit card sales instead of a fixed monthly payment. This means you make higher payments when you have higher sales, and lower payments when your sales are lagging.

Drawbacks of Merchant Cash Advances

While merchant cash advances have many benefits, they can cause significant problems if not used wisely. Be sure to take these factors into careful consideration before taking a cash advance.

Fees and High Interest Rates

Merchant cash advances often come with high interest rates and a variety of fees. It is essential for you to review business finances and know the terms of your cash advance. Be sure your business can sustain itself under the terms of the cash advance.

Unregulated Industry

Because merchant cash advances are not technically loans, they are not subject to the same regulations as traditional loans. This makes it very important to research the reputation of a company before applying for a cash advance.

Is a merchant cash advance right for you? It depends on your business. If your business has strong sales, is growing quickly, and you need quick money or haven’t been able to secure a traditional loan, a cash advance could help your company on its way to success. Just make sure you use a reputable company and you can afford the payments and interest.