Source - The Hyde Opinion
What is a merchant cash advance?
A merchant cash advance is a lump-sum payment from a lender based on future credit or debit card sales. It’s different from traditional bank financing and distinct from alternative financing like factoring or asset-based lending, which have been around for a long time. In the realm of financing options for companies struggling to keep up with their loans and leases, merchant cash advance loans are far riskier because of the onerous terms and conditions often obscured in the legalese fine print.
Why has there been a rise in the popularity of merchant cash advance lenders?
They are easily accessible online with a relatively simple application. The process is nowhere near the depth or scope required for bank financing or asset-based lending.
What are their lending criteria?
Most merchant cash advance lenders don’t examine the company's cash flow. They do not assess the company’s balance sheet, nor do they ask probing questions about business viability. They focus on the creditworthiness of the underlying customer of the borrowing company.
What are the costs?
Merchant cash lenders charge high interest rates and various fees, making the overall cost of money extremely high. When you break down the dollars-in versus dollars-out over the duration of the loan, you realize just how expensive it is.
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