Monday, June 16, 2008
Merchant Cash Advance Cost Comparison
I have received several emails about the cost of a merchant cash advance compared to other working capital solutions. One selling point of this product is that while it's more expensive compared to traditional small business loans (assuming the merchant can qualify for a small business loan as especially in this credit crunch, banks have raised their small business loan criteria even higher), the cost is pale in comparison to any equity solution including taking on additional investors and/or giving up equity in your business. Keep in mind that a merchant cash advance is not a loan product and does not have absolute repayment like a loan which also requires a MCA provider to charge more for that compared to a traditional small business loan. With a merchant cash advance, once you sell a MCA provider your future credit card / debit card receivables that is all the MCA provider is entitled to, no future upside in the business, no profit sharing etc. So what is more expensive? A) Selling your future credit card receivables / debit card receivables at an average discount of 26% or B) Giving someone a percentage of your business forever or until you have to buy them out a premium? I can assure you that option "B" will far exceed any discount that you sold your future credit card / debit card receivables for.