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BY Value Capital Funding

August 11, 2023

Why Businesses Should Avoid the Downsides of a Merchant Cash Advance?

Why Businesses Should Avoid the Downsides of a Merchant Cash Advance?

Understanding what types of businesses are eligible for a Merchant Cash Advance (MCA) is essential for business owners seeking financing. While this business financing may seem easy and accessible, it’s crucial to recognize the potential drawbacks associated with this funding option.

MCAs typically appeal to small businesses in need of quick cash; however, they come with high costs, short repayment terms, and daily or weekly payments that can burden cash flow.

As an alternative, businesses can explore the benefits of MCA debt refinancing, such as Federal Deposit Insurance Corporation (FDIC) Bank Term Loans and FDIC Lines of Credit, offering lower costs, extended repayment periods, and greater financial stability.

This article examines the eligibility criteria for MCAs while steering businesses toward smarter financing solutions.

A Cautionary Tale: The Downsides of Choosing a Merchant Cash Advance

To give you a better insight into the downsides of MCA, here’s a scenario for you to consider. A fashion company called Your Fashion XYZ is looking to expand its inventory and boost marketing efforts during the holiday season. Facing a cash flow gap, the owner, Jane Doe, decided to opt for a Merchant Cash Advance to quickly secure the funds needed to seize the opportunity.

At first, the MCA seemed like a lifeline, offering swift approval and the much-needed cash requirement. However, as the holiday rush subsided, Doe soon realized the downsides of choosing an MCA, these are:

  • High Costs and Burdensome Repayments – The MCA provider charged a factor rate of 1.4, significantly inflating the total repayment amount. To recoup the advance, a fixed percentage of daily credit card sales was withheld. This daily deduction, combined with the high factor rate, left Doe with limited funds to cover other business expenses, hampering her ability to manage cash flow efficiently.
  • Strained Cash Flow – The short repayment term of six months meant that Doe had to allocate a considerable portion of her daily revenue to meet the MCA repayments. As a result, cash flow became severely strained, leaving little room to cover regular operational costs, purchase inventory, or invest in growth initiatives.  A 1.4 factor rate for six months is the equivalent of paying 40% for financing, for just six months!  Double the 40%, to get 80% to get a clear picture of Doe’s annual cost of financing…80%.
  • Renewal Temptations – As the due date approached, the MCA provider presented Doe with an offer to renew the advance for additional funding. Tempted by the prospect of quick capital, she accepted the renewal without fully considering the cumulative costs. With each renewal, the factor rate increased, digging her deeper into a cycle of debt.
  • Impact on Credit Profile – The MCA’s daily repayments were not reported to credit bureaus, meaning Doe’s timely payments did not positively impact her credit score. Unfortunately, when the holiday season did not result in the expected sales surge, and she struggled to meet the repayments—her credit profile and cash flow suffered, making it harder to access more favorable financing in the future.

Introducing Value Capital Funding’s Services: FDIC Bank Term Loans

For businesses seeking a more secure and flexible financing solution, Value Capital Funding offers FDIC Bank Term Loans as a superior alternative. As you explore what types of businesses are eligible for a merchant cash advance, consider the advantages of FDIC Bank Term Loans, which are designed to provide stability and favorable terms for your business’s long-term success.

With FDIC Bank Term Loans, you gain access to a reliable source of capital at competitive interest rates. Unlike MCAs, these loans offer fixed or variable repayment terms, allowing you to plan and budget effectively.

The assurance of FDIC insurance adds an extra layer of security, ensuring that your loan terms remain intact even in unforeseen circumstances. Whether you’re looking to expand your operations, invest in new equipment, or consolidate debt, FDIC Bank Term Loans provide a smarter and more stable path to financial growth.

Discover FDIC Lines of Credit: Flexible Funding for Your Business

When seeking financing solutions that align with your meticulous approach, FDIC Lines of Credit proves to be an excellent choice for your business. Going beyond the limitations of Merchant Cash Advances, FDIC Lines of Credit offer unmatched flexibility and a revolving credit facility that adapts to your evolving needs.

With FDIC Lines of Credit, you have the freedom to access funds as needed, repay, and then borrow againgranting you ongoing financial flexibility that keeps your business agile and thriving. Managing your cash flow becomes effortless with payments aligned to your revenue streams, ensuring that you can make repayments without unnecessary strain.

One of the key advantages of FDIC Lines of Credit is the security they provide through FDIC insurance. This protection safeguards your credit facility, offering reassurance and financial control even during uncertain times. With Value Capital Funding as your partner, you can explore tailored FDIC Lines of Credit that cater to your unique business requirements.

Value Capital Funding’s FDIC Bank Loan Term and FDIC Lines of Credit – The Best Option for Your Business Growth!

As you consider what types of businesses are eligible for a Merchant Cash Advance, we understand the importance of making informed financial decisions, and our loan products are tailored to meet your unique business needs.

If you’re a business owner looking to lower the cost of your working capital, our FDIC Bank Term Loans and FDIC Lines of Credit are the perfect solution for you.

With approval rates exceeding 70%, you can rely on us to help your business grow and thrive. And with interest rates ranging from 8.9% to 12.6% annual percentage rate (APR) and low fixed monthly payments, you can trust that our loans are both affordable and reliable.

Take the next step towards sustainable growth and success. Discover the stability, competitive rates, and peace of mind that come with FDIC-insured financing. Our expert team is here to guide you through the process, ensuring you choose the best option for your business.

Don’t miss out on this opportunity to secure the funding you need and unleash your business’s full potential. Contact Value Capital Funding today at 800-944-6280 and embark on a journey of financial growth and success!

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