Risks Associated with Revenue Based Financing

Bob TannenhauserCommercial Lending

merchantcashadvance There are many things associated with new businesses that any entrepreneur needs to consider. One of the most important things you need to think about, however, is how to get your start up money. After all, it takes money to make money. One thing you should consider is a merchant cash advance, a process through which you are presented with a sum of money in return for a percentage of future credit card sales. There are a few pros and cons associated with this process.


Merchant Cash Advance Advantages:

  • You get your money up front

When you choose a merchant cash advance, you get your money immediately. There is no waiting around for approval that may never come, like there would be with a typical bank loan. All you have to do is provide the necessary application and financial statements for approval. If approved, you can generally receive the needed capital in a flash.


  • They are simple to pay back

Paying back your Merchant cash advance is simple, too. When you apply for your financing, you will agree to give the lender a portion of your credit and debit card purchases until the loan is paid back. These payments are generally percentages of payments, based on your daily earnings. They are typically very flexible schedules, which are much less ridgid than typical lending options.


Merchant Cash Advance Risks:

  • This is an unregulated market Because this is a relatively new practice that operates outside of typical lending parameters, the market remains largely unregulated. There are only a few clear rules that need to be satisfied, so lenders could see it as an opportunity to be predatory. You want to watch out for lenders that are less than reputable. However, finding a reputable and helpful lender is simple through a business loan marketplace like BoeFly


  • High interest rates

Because the market remains unregulated, some lenders can charge high interest rates. High interest rates are by no means the norm, but they are out there. Most lenders have relatively low interest rates, but some charge more for their business. Higher interest rates do not necessarily guarantee satisfaction or that you will get more money up front, so selecting a lender with a rate you are comfortable with is ideal.
When choosing a merchant cash advance to help support your business, you must consider the risks and rewards. While you will be getting your money up front and an easy way to pay it back, there is also the possibility of high interest rates in an unregulated market. You must weigh these against each other before you decide if this type of financing is right for you.


Learn more about Merchant Cash Advances