Many businesses use merchant cash loans or merchant cash advances as a means of sidestepping the debt and fixed payments of traditional loans. However, the devil is in the details, and a merchant cash loan can easily place a major strain on cash flow and can potentially threaten to turn business finances upside down.
How Merchant Cash Loans Really Work
Merchant cash loans are frequently advertised as an infusion of capital without debt and lots of flexibility. The balance is repaid from a percentage of sales instead of fixed payments, giving businesses more financial leeway. The reality of merchant cash loans is that, while they may not place any debt on the balance sheet, merchant cash loans have other strings attached. Because they are sold as “a debt-free cash infusion” on the front end, merchant loans come with very high interest rates as well as hidden fees. While the repayment method seems flexible, the interest and fees result in an extremely large balloon payment at the end of the term agreement. A business would have to more than double its revenue for the full terms of the merchant cash loan in order to make any headway on the balance owed. This can place businesses in a financially precarious position.
Removing Your Merchant Cash Loan Headache
If you have used a merchant cash loan and are now burdened with a large balance due to your lender, there is still a viable solution. Accounts receivable factoring can help to quickly pay down the balance before the interest and fees flip your business finances. Accounts receivable factoring converts unpaid invoices to cash within 24 hours, so you can access the funds you need to maintain regular business operations and eliminate the balance owed on a merchant cash loan. Accounts receivable factoring is truly debt-free, completely transparent, and with no hidden or additional fees. While many businesses use accounts receivable factoring to boost their cash flow, others use factoring to quickly get rid of the looming balances from merchant cash loans and other so-called “flexible financing methods.”
New Century Financial specializes in accounts receivable factoring solutions. If you own a business and are trying to get out from under a merchant cash loan, or you simply want to supercharge your cash flow, contact our offices today.