8 Pros And Cons Of Merchant Cash Advances For Contractors

If you’re into the construction business, you might have issues when it comes to funding your building expenses and staff’s salaries. Because of these issues, you may want to consider applying for different business financing alternatives to continue your operation. However, every option has its risks, from payment terms to piling up interest rates, so choose wisely. 

One of the most popular financing options in the construction industry is Merchant Cash Advance. With this, people involved in the construction business, including contractors and subcontractors, have instant access to additional capital. However, a merchant cash advance is not a business loan, contrary to what most people think. Instead, it’s a funding agreement against your future revenue.   

In short, you are trying to sell your future income in exchange for immediate access to cash. If you find this interesting, you may visit Credibly’s cash advance for business or check out your local cash advance provider for more details.  

Can’t decide? You may read below the pros and cons of applying for a merchant cash advance. It will help you whether to apply for it or not.  

Pros Of Merchant Cash Advance 

Here are the pros you might want to consider if you’re hesitating to apply for merchant cash advance: 

1. Quick And Easy Access To Instant Cash

As mentioned above, merchant cash advance allows everyone to have immediate access to additional capital, especially if their business needs it as soon as possible. It is one of the easiest and fastest options for business financing. It is also why most construction businesses choose this when they need immediate cash funding.  

Also, the application process is effortless. All you need is to submit a couple of documents, specifically credit card statements for previous months and additional bank statements. You may submit these online or on-site. For the online process, the money will be transferred to your corporate bank account within 24 to 48 hours after approval. 

2. No Fixed Monthly Installments

When applying for bank loans, you must pay a fixed amount of monthly installment, as stated in the loan contract. Failure to consistently pay this may only result in hefty penalties, which can be a burden, especially if your construction business is not doing fine in the past few months.  

But with a merchant cash advance, you have no monthly fixed rates to pay. You will only be given a fixed percentage every month, and the payment will reflect based on your credit sales. For example, your income for this month is only USD$50,000, only half of the revenue generated last month. So, you will only pay USD$5,000 for this month.  

3. Bad Credit Is Not A Problem

When you’re planning to take out a loan, you must be worried about your credit rating. In most cases, banks don’t release loan funding to companies with bad credit scores. It is their way of telling you if you can pay your monthly installment without being a stressor to them.  

Luckily, bad credit is not a big deal to merchant cash advances. They are not concerned about your bad credit ratings and your ill-fated past transactions. Instead, they are more concerned about your future sales and the growth of your company.  

4. Collaterals Are Not Required

In banking loans and other business financing options, your loan will not be approved if you can’t show collateral to match your requested amount. It is among the common reasons many businesses get their loan requests declined. 

However, there’s no such thing when it comes to merchant cash advances. If your construction business is only starting to grow, lenders may provide you with additional funding without requiring you to submit collateral.  

5. Debts Never Increase

In merchant cash advance, your debts will not stay fixed until you’re fully paid. It is contrary to bank loans and other business financing options where debts pile up with interest. So, all you need to pay is the loan fee and the factor fee, which is in the contract.  

Therefore, you won't have to worry about interests, late fees, and penalties with this funding source. You only have to pay what's agreed between you and the lender. 

Cons Of Merchant Cash Advance 

While immediate access to cash is all good, considering the cons of merchant cash advance will help you make a wise decision, especially if the following are your top concerns: 

6. More Expensive Than Other Financing Options

Unfortunately, a merchant cash advance is one of the costliest financing options. According to financial experts, annual percentage rates could be as high as 300%, depending on your lender and the borrowed amount. So, you might want to think about this thoroughly, especially if you have other business plans to consider.  

Also, a merchant cash advance is better for businesses that can stabilize and increase their income growth. 

7. It’s Just A Band-Aid To Your Problems

A merchant cash advance is only a temporary solution to your problem. Without solving the root cause of your financial crisis, you will never be able to stand up if you only rely on cash advances, especially when talking about annual rates.  

Don’t get this wrong. All forms of loans and debts are just a band-aid to your financial wounds. The best thing is to strategize your sales and marketing and use the advance to gain income more than the breakeven value against your debts.  

8. Merchant Cash Advance Is Still Unregulated

Banks and other loan institutions are regulated by the government and are subject to the laws. It ensures that such firms won’t increase interest rates anytime they want to protect you from hefty loans. However, this is not the case with a merchant cash advance.  

Unfortunately, a merchant cash advance is not yet regulated. So, no one will check if you’re getting a fair deal between you and the lender. So, that's up to you if you're willing to take the risk.   

Final Words 

Being in the construction industry means being ready for an unexpected financial crisis. Luckily, there are many ways to help you resolve your problems. One of them is merchant cash advance. 

While it may offer you access to immediate cash funds, don’t ignore the risks you have to consider before applying for it. Also, understand that this will not solve your problems. It may even worsen your financial crisis if you don’t solve the issues in your internal operations. It doesn’t only apply to a merchant cash advance but also other business financing options.  

So, think and weigh carefully the pros and cons presented above and see if this funding source suits your business needs.