Merchant cash advance or MCA, as it is known, is so easy that any businessman can fall into a trap if he is not smart enough. If one knows how and finds the right source, it can be a tool for growth but if one ends up with a crooked lender, the borrower lands in a debt trap. Here are five tips to keep in mind when one considers merchant cash advance.
Merchant cash advance loans are unsecured and this means there are hawks out there who milk a client for all he is worth. Avoid such lenders who insist on supplemental fees and application fees. Avoid lenders who charge a high rate of interest that can be as high as 50% APR. Select only respected, well-known lenders like wscapnow.com whose dealings are transparent.
Check contract terms carefully and check the lender online
Just because money is needed badly it does not mean a merchant should settle for the first MCA he comes across. It is in his interest to research the lender and find out his reputation online through testimonials. The contract or agreement too needs to be examined in detail before signing because there may be hidden clauses that ultimately result in the borrower paying more than he expected. Before merchants apply for merchant cash advance they should check the offer terms and make sure they qualify. Once they do, then it is better to initiate the online process for fast process and disbursal. If there are doubts, the merchant should always call, get clarifications and get them in writing. It is wise to not rely on verbal assurances and be very specific about each clause of the contract.
Plan a strategy before seeking MCA
Just because MCA is available so easily it does not mean a merchant can get the money and spend it on vacations or to pay college fees. While lenders typically do not ask the purpose for which a loan is sought, it is for the borrower to have a plan in place to make good use of the money to grow their revenues. This way they see an increase in revenues and repayment is no problem even if it is tied to credit card sales. In fact, if sales increase the amount is repaid in a shorter time and the merchant can go in for another loan to grow his business.
Borrow least and avoid the debt trap
MCAs can be deadly debt traps for businessmen who opt for such funding without much planning. They may borrow to repay a debt and fall into the debt trap. It is wiser to plan for best use of funds and borrow the least amount so that daily cash flow is not affected. Remember, repayment of MCA is usually linked to daily credit card sales. If one borrows more, the daily outgo is more.
Compare rates and get all clarifications
It takes time and effort but it is worth it as one will get the lowest rate and make sure there are no unpleasant surprises.