Merchant Cash Advance Pros and Cons: What You Should Know

Businesses in need of quick funding may turn to merchant cash advances. When using financial services, it’s crucial for business owners to understand contractual terms, obligations, and implications prior to signing a contract. 

This blog post will provide you with essential learning and information about the advantages and disadvantages of merchant cash advances.

What are merchant cash advances used for?

A merchant cash advance offers businesses a lump sum of money for a part of their future sales. This form of funding is typically attractive for businesses looking for a financial lending structure that’s both accessible and simple. 

Businesses generally use merchant cash advances to support payroll, increase their available inventory, make an investment in marketing campaigns or rebrand, and address working cash flow to make quick payments and solve emergencies. 

Merchant cash advances can also be a popular option for struggling businesses due to their flexible repayment structures. 

However, the downside of this arrangement is that if a company goes out of business, it will still be required to pay the advance back to the lender. Lenders often include a clause in the contract to ensure they don’t lose out on their advance. For this reason, it’s important that companies review contracts thoroughly and consult with an attorney before signing. 

While there are a number of conveniences that merchant cash advances offer, it’s important to be aware of the disadvantages of this financial structure so that your business is completely informed of present and future implications.

The pros of merchant cash advances

While traditional merchant cash advance structures can have few limited benefits, other research and technology-backed solutions like Silo may be a better alternative. 

Nevertheless, let's first review the pros of merchant cash advances before discussing better ways to obtain working capital for your company. 

No collateral needed

One of the main advantages of merchant cash advances is that they don’t require collateral like a traditional bank would. This means that small business owners can access the capital that they need without having to compromise necessary assets. 

Thus, merchant cash advances can be beneficial for businesses that don’t have many assets or businesses that aren’t ready to risk them at this stage.

An easy application process and faster approval

Compared to traditional loan structures that tend to favor larger corporations, merchant cash advances require minimal paperwork, generally have straightforward application processes, and typically have quick approval times. This ensures businesses receive their funding within a few days. 

Fewer eligibility requirements

Businesses don’t have to worry about credit risk, as many merchant cash advance lenders don’t require a credit score check or substantial credit history. This is due to the fact that lenders are more concerned with future revenue rather than past financial performance. 

The cons of merchant cash advances

On the surface, traditional merchant cash advances can seem like the quick fix for cash flow issues. However, there’s an underlying issue that businesses will likely find themselves grappling with. Let’s discuss the disadvantages of a merchant cash advance’s fee structure.

Some companies charge high fees

Notoriously high fees and interest rates may cause your small business to experience more financial hardship in the long term. Because of these fees, you may end up paying annual percentage rates that reach triple-digit figures, making these financial services one of the most expensive options on the market.

Unfortunately, the fee structure embedded in many traditional cash advance companies is considered predatory lending. These structures attract unsuspecting small businesses using their quick application processes, only to charge exorbitant high fees that result in a cycle of debt.

Choose Silo Cash Advance to supercharge your business

While traditional forms of lending may not work for your small business, there are other funding structures designed in collaboration with small businesses to ensure a beneficial outcome for both the business and its partner.

If you’re looking for an alternative solution that’s reliable, trustworthy, and affordable, consider Silo Cash Advance. Designed with small and medium-sized businesses in mind, Silo offers security and worry-free access to funding, without the smoke and mirrors.

Unlike traditional loans that prey on your small business' vulnerabilities, Silo encourages sustainable growth and is built to empower. No more outrageous fees—we offer a flexible repayment structure tailored to your business needs. In fact, you won’t have to worry about repaying us in the first month!

Businesses leveraging Silo Cash Advance can confidently expand into new markets, enhance infrastructure, optimize business processes, and much more, giving you a competitive edge. Silo’s focus on dynamic availability allows your business to seize time-sensitive opportunities while maintaining your established momentum. 

It isn’t just about getting you the money you need; it’s about fostering sustainable revenue growth, ensuring your business not only meets its current needs but has enough profit to guarantee future success.

“Silo Capital gave us the financial capacity to grow where and when we wanted to. Silo’s funding helped us introduce our brand to the West Coast market.” - Ganfer Fresh

Check out how El Campo Imports has benefitted from Silo Cash Advance.

Make the choice to take your business to the next level. Book a demo with Silo today!