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Smarter Finance USA Blog

Are Merchant Cash Advances a Scam?

Posted by Rob Misheloff

As a husband and father, the best example I can set in the world is by helping others. That’s why I’ve built my career around helping my fellow business owners grow their companies. My hope is that this website and my company help you to grow your business and achieve your goals.
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Have you been pitched a merchant cash advance?

I bet the dude (or dudette...) you spoke with didn't quote a real interest rate, right?

They'll tell you that cash advances don't have an interest rate..

...because merchant cash advance lenders simply take a portion of your daily credit card sales. 

That way on good days you pay more...

...and on bad days you pay less...

Doesn't that sound just peachy?

Merchant Cash Advance Interest Rates for Real

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So.. when you're told there's no interest rate... 

Technically that's true. 

But these advances are designed be paid off over a certain time period. 

Which means you can calculate an approximate interest rate. 

How bad is it? 

Check this out... 

Merchant cash advance brokers will tell you the product is based on a "buy rate" or a "factor rate."

That means if the advance is for $10,000 and the factor rate is 1.3, you'll repay $13,000.

So... if you know how many months you'll pay it back in... you can figure out what the interest is.

 

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Do these rates sound high?

Kinda makes you want to barf, doesn't it.

 

Do Rates Matter for Short Term Business Loans?

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The second part of the scam story is that since these loans are only short-term, calculating an interest rate is meaningless. 

Did you know that most merchant advances are renewed 3 or more times?

That's because your payments are so high, you might need more capital just to keep your doors open. 

We often run into business owners who have taken out 2 or more cash advances. Some companies call this business loan stacking.

We call it "shark bait." 

We even spoke to someone recently who was stacked so deep his cash advance payments exceeded his revenues. 

The only solution for many business owners stuck in the cash advance trap is to get out. 

Read Advice on Getting Out of Merchant Cash Advances Here

The truth is, most of the time, these products cause way more problems than they solve. 

What's the Problem With Merchant Cash Advances?

So...

Here's how we talk to our customers about any type of cash advance product...

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One of the problems is that for business owners with poor credit, there are few other avenues of funding than these high rate products. 

If you are dealing with someone who is straight with you... 

... and they are truly transparent about the real costs associated with this type of business loan...

... and you're cool with it...

Then that's fine. 

Unfortunately though, in most cases people getting into a bad business loan have not been dealt with honestly. 

Is a Merchant Cash Advance Ever a Good Idea?

If you have no options to get money for cheaper... AND you expect to make enough money with use of the funds that the high rates don't matter...then yes. 

Just make sure you deal with someone who will be straight up with you.

If you have been turned down by all of the much cheaper working capital options, such as the solutions we usually recommend to our customers (rates of about 1/3 of a merchant cash advance) they might be ok.

Here's the deal:

We'll try our best to get you into a less expensive option.

That isn't always possible, but when we do have to present you with something like a cash advance... we won't play like the rates are low. 

That also means zero pressure.

No sleazy sales tactics.

No "this offer expires by lunchtime" bullcrap. 

Just good solid advice and giving you the information you need to make the right decision for your business. 

Sound cool?

Just call us at (800) 786-5696 or click below to get started... 

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Topics: Small Business Loans, Problems With Business Lending

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