A loan that is largely unencumbered by regulations is, basically, a merchant cash advance. The ability of the lender to pretty much charge interest rates as they see fit is not really a proper characterization since, if they charge too high a rate – they will not be competitive in a free market. Thus, with this constraint, merchant cash advances can be attractive if you are having trouble seeking a traditional loan for your business because of creditworthiness, bankruptcies, etc.

What Are Some of the Benefits of a Merchant Cash Advance?

For one thing, you don’t need to worry about monthly payments – this is a huge boon for businesses that are operating just above breaking even in terms of revenue vs operations. You could never get away with no payoff date, interest rate or lack of a monthly payment with a bank loan. Furthermore, there’s no collateral either, so your assets aren’t at risk if the business can’t break into profitability.

The relative lack of regulation means that you can expect to receive your approved funds very quickly – in fact, time frames as fast as 3 hours are not unheard of. Obviously, your credit does not have to be stratospheric as it often has to be to get a loan from the big banks.

Lastly, insofar as pros are concerned, the best aspect of a merchant cash advance may be the way payment is remitted: it depends on what the business makes. Cash advance lenders in this sub-industry fashion a payment term based on the daily balance – only a percentage of what your business brings in will be taken, automatically, since they have control of your merchant account.

What Are Some Drawbacks of a Merchant Cash Advance?

Of course, such an advance is costlier than even a traditional bank loan, since it is regulated by a market in which the primary buyers are comprised of people with low credit scores or similar reasons. Tied to this drawback is also the shorter term of the loan (between 3 and 18 months); this drawback can be parried, however, if you only use this type of loan as a short-term solution to cash-flow issues.

The lack of regulations is a con; however, we addressed that above in how the market tends to regulate it more than some give it credit for – but it’s still worth mentioning. Due diligence is required due to some unethical lenders out there, but this can be said of ANY lender in any sub-industry.

To learn more and get guidance into this and other financial properties, drop us a line at Impact Commercial Capital.