Merchant Cash Advance Loans – 3 Misconceptions You Should Know About

There are many myths and misconceptions surrounding merchant cash advance loans. While it is a legal form of funding, these loans are often associated with junk fees and are only meant for short-term initiatives. 

Merchant Cash Advance Is A Loan Product.

Merchant cash advances are loan products that allow small businesses to access the funds needed to grow. These loans are popular among retailers, restaurants, and other small businesses needing working capital. Businesses that have low credit scores or those that are experiencing financial difficulties may find these loans helpful. Often, these loans help businesses prepare for a busy season.

Merchant cash advances can be used for any expense associated with running a business. They are a convenient source of funding that allows small businesses to quickly access capital and avoid the risks and hassles of a traditional bank loan. They can help business owners recover from unexpected costs and even help their businesses grow. In contrast to traditional business loans, merchant cash advances are unsecured loans, paid back from a percentage of future credit card sales. While merchant cash advances are only suitable for some small businesses, they can be an effective alternative for entrepreneurs who need access to fast cash to pay for inventory, payroll obligations, or other business-related expenses. You may check out sites like https://l3funding.com/ for more valuable information about merchant funding.

It Comes With Junk Fees.

The cost of merchant cash advance loans is often astronomical, and their terms are opaque and ambiguous. The FTC is investigating the practices of some merchant cash advance providers, including aggressive marketing tactics and abusive collection practices. In the complaint, the FTC alleges several defendants deceived small businesses by requiring upfront fees and personal guarantees, subsequently providing less funding than promised and deducting more money from consumers’ bank accounts than promised. Some merchant advance fees are buried in the fine print, while others are clearly stated. For instance, some funders penalize early repayment of the loan, earning less interest if the loan is repaid early. Other funders reward early repayment and are less likely to charge prepayment penalties. It is important to ask about the fees associated with each lender before signing on the dotted line. Although most lenders of merchant cash advance loans are not predatory, it’s still important to do your research before signing up for one. Before signing any papers, check the lender’s credentials and check their Better Business Bureau ratings. In addition, entrepreneurs should avoid advanced confessions of judgment and be wary of undue pressure.

It Is Geared Towards Short-Term Initiatives.

Merchant cash advance loans are designed to meet the short-term cash needs of small businesses. They are often used to purchase inventory, expand operations, or buy out a partner. Because they are tied to revenue generation, short-term loans can be paid back more quickly. Long-term loans are designed to finance long-term business goals and require a longer payback period. However, because they are geared towards short-term initiatives, merchant cash advance loans generally carry higher interest rates than traditional SBA loans. This type of loan also requires businesses to maintain accounts receivable. As a result, it is best for businesses with variable sales and high receivables.