At One Payment, we love helping our merchants get a leg up in the fast moving world of business! In this article, One Payment will explain how cash advances from credit card processing companies might not be the best business move for you to make.
It sounds simple enough: your business is running a little low on cash, and you still have bills to pay. While your first thought might be to consider a cash advance from your processing company, it’s actually one of the worst decisions you can make in the long run.
How Does It Work?
Basically, a merchant cash advance is cash that’s taken out in advance of future sales. Just like any loan, the borrower would then pay back the loan plus interest.
However, business owners end up paying exorbitant fees based on the interest factor alone, and many businesses end up shutting their doors. Many processing companies automatically deduct money each day as long as there is money in the merchant’s operating account. It is not uncommon for business owners to take out more cash advances in order to pay off the previous cash advance, which can cause them to further increase the amount of debt.
Ironically, a lot of these businesses are unable to get bank loans, which is why they have to go the route of cash advances.
While getting a cash advance might seem like a great idea, it can merely be a short-term solution for a long-term problem. You must ask yourself if you are able to handle making a payment every day. If you’re unable to, then don’t get the cash advance. In addition, it can take years to pay off these advances, which by this point have nearly doubled based on the amount in interest fees.
While financial difficulties are intense and stressful, make sure to think through the issue logically before you dig a hole that ultimately buries your business.