Every small business owner is familiar with the incessant calls from merchant cash advance companies trying to entice you to accept an advance with astronomical interest. Why would any reasonable business owner consider such terms? Is there no other option? The answer to the first question is the answer to the second question, there frequently are no other options.
The small business owner might not be “credit worthy”; or may have maxed out his credit threshold. So why not just refuse the quick money, and grin and bear it? The answer to this question is that it might actually make sense for the business owner to take the expensive money in order to purchase needed inventory, machinery, or other capital needs. The cash advance companies know this, and therefore can dictate the terms. In such a scenario is there anything that can be done?
The first rule is to only take the minimal amount of money needed to solve the current cash crisis. The cash advance companies push hard for you to have “extra money” so your business is not so cash strapped; when in reality they are strapping you even more.
The second mistake businesses make is to take subsequent advances to “pay off” the first advance, and to repeat the cycle. This practice is even more onerous since you end up paying exorbitant interest twice on the same money. Never let a cash advance company convince you to let them pay off your balance on another advance, in addition to giving you more money. Most importantly, make sure that you really need this option, and that all other traditional borrowing methods are unavailable. Remember, they are wolves in sheep’s clothing. They act as if they are on your side, when in reality they know that they are burying your company.