Category Archives: Loans and Funding

Can You Pay Your Mortgage With A Credit Card?

If clearing the mortgage seems challenging, paying through a credit card might seem a viable option. It also gives you some time to pay your mortgage and then clear your credit card bills over time. With all the rewards and signup bonuses, the idea of paying your mortgage using your credit card may sound tempting. But don’t make the decision without calculating other costs. There’s a fee included and interest if you delay the payment of bills.

In this post, we are going to answer your questions about whether can you pay your mortgage with a credit card, its cost, and other crucial factors. Let’s get started.

While that can be costly, we can’t ignore the sizable bonus that every first-time credit card user is eligible for and the plethora of rewards you can collect for every spending. But is that really a good option? And do mortgage companies allow you to pay using your credit card? Most importantly, does the card network accept that?

Is It Allowed to Pay Your Mortgage With A Credit Card?

You get to choose how you pay the mortgage. Perhaps, you will think that using credit cards to pay the loan can give you some time to repay the money, as long as you can pay your credit card bills regularly. Moreover, you can easily rack up reward points on credit cards and save significantly on these expenses.

However, you are borrowing another loan just to repay the loan you had borrowed from the bank. Whether or not you can do that depends on your card issuers and the card network, such as Visa, American Express, and MasterCard.

First things first, you can pay your mortgage with your credit cards, but not directly. You need to pay it through a payment service, but that comes with added fees, which can outweigh the rewards and bonuses you get from the credit card. That said, using credit cards to pay off your mortgage can make sense in some cases even if that means you will pay extra in fees. Still, it’s advisable to think your decision through before paying with a credit card.

Is It a Good Choice?

Even if you manage to pay your mortgage through your credit card, it might not be good for your budget or your credit score either. It’s important to consider all factors before choosing a credit card for your mortgage payments.

Fee and Rewards

You might want to consider paying your mortgage through your credit cards if you can earn rewards on the significant monthly payments. But you also need to factor in the fee you will pay to the payment service provider who will facilitate mortgage payments through credit cards for you. Suppose, you are making a payment of $3,000 using your card for each mortgage payment and the processing fee for each transaction is 2.5%. This means you pay $87 extra on every mortgage payment.

The reward you earn from these cards varies significantly depending on the card network and their reward rate. There’s a very little chance that the rate is higher than the processing fees. Of course, there’s a signup bonus that might cover your processing fee. The signup bonus comes with minimum spending conditions, which you can easily meet by paying your mortgage through the card. If the signup bonus is more than the processing fee and can save you significantly on your card payments, then paying your mortgage with a credit card makes sense.

Suppose you are getting a welcome bonus of 70,000 points, but to claim the bonus, you must spend $5,000 using your new credit card within a month. You can use your mortgage payment to meet this threshold and qualify for the whopping welcome bonus, even if that means you’d incur a processing fee. Besides, it’s worth paying your mortgage using credit cards if the rate of rewards on the card exceeds the processing fee.

For instance, let’s say the processing fee for each mortgage payment is 2%, while you get a flat 2.5% cashback on every card transaction. The best you can do is pay your mortgage through a credit card, pay the credit card bills monthly, and save 0.5% in rewards. This means, for every $1,000 spent on mortgage payments, you can pocket the $5.

Check Interest

Using your credit cards to pay the bills does not make sense if you can’t pay the card bills on time. There is a fixed interest applicable to late payments, and that can go up to 18% and higher depending on the card network you choose.

Paying a mortgage through credit cards does not make sense if your interest rate is ridiculously high and you are not certain you can pay the bills on time. Incurring interest on late payments is a recipe for financial disaster. So, if you are using cards, make sure the card network charges reasonable interest. Also, consider this option only if you have a stable source of revenue and you can pay your bills timely.

Remember, if you don’t have sufficient balance in your bank to pay your card bills and have piled up interest with processing fees, all the benefits of using credit cards for paying your mortgage will go out the window. You’ll rather end up paying more than you should.

Check With Each Party

To be able to pay your mortgage with credit cards, you need to ensure that each party involved in the process is in line with your goals. For instance, this involves the mortgage company, credit card issuer, and payment service provider. There’s a possibility the card network might allow you to use the card for loan payments, but the mortgage provider may not accept it or vice versa.

Usually, Visa and Mastercard allow cardholders to pay mortgages using their debit and credit cards, but Bank of America does not. Wells Fargo, on the other hand, allows mortgage payment so long as the mortgage company accepts that. You need to work with the card issuer, card network, mortgage company, and payment service provider to see if they allow mortgage payments using credit cards.

Pros and Cons of Paying Mortgage with Credit Cards

As mentioned previously, paying your mortgage using a credit card can be beneficial for some and an unnecessary expense for those who pay a higher fee than the rewards they collect on the spending. Let’s take a look at the pros and cons of mortgage payment with credit cards so you can decide whether or not it’s a good idea.

Pros

You will be eligible for the credit card rewards and a whopping sign-up bonus
It’s easy to meet the conditions of the bonus with your mortgage payment
Improve your credit score if you pay the card bills on time
Save significantly on your mortgage payment

Cons

You need to find a payment service provider, as mortgage companies do not accept payments through credit cards directly.
Using cards for mortgage payments can lead to a financial disaster, as not being able to pay your credit card bills can raise your dues significantly.
A fixed credit card processing fee, which is an additional and unnecessary expense for cardholders.

How Does It Work?

The worst part about the method discussed above is that lenders do not accept payments through credit cards, which means your only option is to find a payment service provider who accepts the credit card and issues a check on your behalf to the mortgage company. The next step is to check with your card network and card issuer to know whether or not they allow you to use credit cards for payments.

Earlier we mentioned how you can use some credit cards to clear your mortgage payments, but that isn’t applicable to all card networks. Some card companies might decline your request of using the card for paying your mortgage. Even if they accept, your issuing bank might decline your request. Once you have checked everything, you need to talk to your payment service provider about the fee they will charge for issuing a check. The fee will appear on your bill.

Make sure you pay your credit card bills in full and regularly, as missing even a single payment will not just incur a hefty interest, but can negatively affect your credit score. Besides, you do not want to incur interest on the card when you are already paying interest on a mortgage.

Conclusion

Paying your mortgage with a credit card is a good choice given that the rewards are higher than the processing fee and you are sure you can repay the bills on time. You need to consider your budget and the card fee before anything. However, if you are putting a lot of money on your credit card, adding a mortgage to the list might not be a very good decision. Remember, you don’t want to hurt your credit score and you certainly don’t want the burden of interest and fees on top of the mortgage payments.

What Is Better: Venmo Business Account Or Personal Account

For individuals and small business owners, mobile payment apps, like Venmo are convenient. It’s one of the safest, easiest, and fastest ways to pay your bills, rent, and make payments at the retail and online stores effortlessly. Launched in 2007, Venmo is a great choice for people that want to exchange money without cash or cheques.

But now, its uses have extended to startups and small businesses that need a mobile payment app to securely transfer funds. Now that you have a choice between personal and business accounts, which one should you choose? Let’s explore the features and pricing of each account in detail. This article will help you understand which is better between Venmo Business Account Vs Personal Account

Venmo Business and Personal Account

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Venmo launched the business version for startups, small-scale companies, freelancers, and other individual sellers. It facilitates seamless online transactions through its mobile app. You can sell goods and services and get your money through Venmo.

For that, you need a Venmo business account. Note that the company has prohibited personal Venmo for businesses. The question is, is it worth upgrading your account to Venmo business or should you stick to the personal account? Let’s find out.

Venmo Personal and Business Accounts

You must already know Venmo features if you have a personal Venmo account. It allows you to send money to a verified business account, with friends and families, and others. However, to receive money for the goods and services sold, you need to upgrade to the business account.

Those who have not used Venmo so far, know that it’s more than just a payment method. You can like and comment on the transactions, allowing you to connect socially with peers. The setup for a personal account is pretty simple. You can download its app from the PlayStore or AppStore or register through the website using your credit/debit card. You can receive and send payments to any Venmo user.

Venmo business and personal accounts are almost similar, except that you can use its like and comment system to socially interact and engage with your customers, build a loyal customer base, and grow your business. When signing up for a business profile, you get to choose from the type of organization you are running.

Despite these similarities, there are some key differences between Venmo personal and business accounts. These are mainly related to transaction fees, features, service fees, and bank transfer limits. Let’s understand which one is better and more suitable for your needs.

Venmo Business Account Vs Personal Account: Transaction Fees

Starting with Venmo is free. You can create a personal profile without incurring any charge. However, using the app to send and receive money doesn’t come for free. Here’s what it costs.

3% of the transaction size: If you use credit cards to transfer funds.
1% of the transaction or $5, whichever is greater: If you deposit your paycheck or government checks to the bank through Venmo.
5% or $5, whichever is greater: If you deposit other regular checks through the app.
75% of the transaction: If you choose instant money transfer. Venmo transfers money within a few business days, after verifying the transaction. However, if you need it immediately, you can choose instant transfer and have it deposited immediately at a small fee.

Venmo business accounts, in terms of the fee structure, are quite different from personal profiles. There’s no setup fee for this account. There’s no maintenance cost, either. But, there’s a flat transaction fee, which is charged for each transaction. Besides, there’s a tipping option, enabling which will help you receive tips from your customers. You can then add that to your bottom line.

Each merchant is charged a flat 1.9% of the transaction and $0.10 on all payments above $1. The fee increases if you choose Braintree or PayPal checkout for completing the transaction online. It is 3.49% and $0.49. That’s why people usually choose in-person Venmo-to-Venmo transactions. Remember, the fee structure is the same for all business profiles, no matter which industry you operate in and the size of your transactions.

Venmo Personal and Business Account: Transfer Limit

Both personal and business accounts on Venmo are associated with a transaction limit. It’s not a suitable platform for those making hundreds of thousands of dollars every few days. Let’s understand the transaction limit for Venmo users.

Unverified Venmo users are allowed to transfer up to $999.99 to their bank accounts weekly.
The transfer limit increases to $19,999.99 per week for those who have completed the account verification.
Venmo has a transfer limit of $5,000, meaning you can transfer this much per transaction.
If you are initiating a request for an instant transfer, you need at least $0.26, as that’s the minimal amount to send money instantly.

You can add money to your Venmo account to make the transfer, although that’s not necessary. You can transfer money through the linked debit/credit card. If you are considering adding money to Venmo, the limit is $10,000. The platform has also set limits for the total amount you can spend. It’s $299.99 for unverified users and $60,000 for those with verified accounts. Once you are verified, your weekly purchasing limit increases to $7,000.

These were the limits for Venmo personal account users. Upgrading your account to the business profiles will increase your transaction limits. For unverified business profiles, there’s a weekly limit of $2499 for payment.

The amount you can transfer to the bank with your business profile has the same limit as your personal Venmo profile. Once you have verified your profile, your weekly transaction limit will increase to $25,000 and you can transfer up to $49,999 to your bank every week.

In addition, there is a limit to the size of the transaction. The maximum transaction size for Venmo business accounts is $10,000 (for Instant Transfers) and $50,000 if you are depositing money from Venmo to your bank account.

Pros and Cons of Venmo Personal and Business Accounts

Venmo Personal Account

You cannot use Venmo accounts for business purposes. It’s strictly restricted and against the terms and conditions of the company. However, you can use it for small and personal transactions, i.e. for sending money to your friends and family. Here are some pros and cons of the personal Venmo account you should know before signing up for the payment app.

Pros

Easy to install and set up. You just need to download the app on your mobile and complete your free registration and you are good to go.
Fast and efficient
Free service
Robust security

Cons

Venmo is not supported outside the United States. You can use the app within America to send and receive money.
The transaction fee is charged for each transaction no matter the size.
Has strict limitations for the transaction size.
Not a good choice for businesses conducting a large volume of transactions every week.

Venmo Business Accounts

As we have mentioned before, Venmo business is for small companies or large-scale corporations requiring a streamlined and easy-to-use payment system. It has comparatively fewer limits and is a much better option than personal profiles in terms of the size of transactions. However, it also comes with its share of drawbacks you should know before setting up a business profile.

Pros

Get your QR code and offer a contactless payment option to your customers.
A reasonable fee, 1.9% of the transaction value, and a fixed $0.10 per transaction.
Easy to switch between business and personal accounts.
Better security and convenient transactions
Allow businesses to process large transactions
No setup or maintenance cost

Cons

Online payments are quite expensive
Doesn’t support integration with other tools

Other than these, Venmo for business comes with certain restrictions for the type of products you can sell. There’s a possibility you might violate its terms and conditions for selling products that fall into the high-risk category or the ones prohibited by Venmo. Sadly, Venmo is not for every individual or business. While you might be able to transfer small amounts easily, people operating in high-risk industries or processing large transactions should rely on safer methods.

The platform is based on a one-size-fits-all approach, which may not work for every business. There are better, cheaper, and safer alternatives that offer customization and flexible operations. Its business version was launched in July 2021 and shortly after that, it started tracking down the users that used Venmo personal accounts for conducting business.

Businesses are supposed to show income above $600 through these third-party payment processors to the IRS. And since there is no monthly record or tax information available on the personal Venmo account, signing up for the business profile makes sense.

Conclusion

Venmo is a reputable mobile app payment platform that supports all kinds and sizes of transactions, including in-store or online transfers. While the personal account doesn’t have many features, its business version is a feature-packed, convenient, and secure choice for businesses looking for a flexible money-transfer app.

PayPal Working Capital: Requirements, Pros, and Cons

PayPal has gained immense popularity for offering a digital wallet to facilitate smooth and seamless transactions for merchants worldwide. Accepted by many nations, PayPay is an ideal payment gateway for domestic and international transactions. It offers payment processing and nearly all kinds of transaction-related services. The fintech company has added a new service to its list, “PayPal Working Capital and PayPal Business Loans”.

These are for merchants with short or no credit history. Both have different eligibility requirements, repayment terms and uses. Stick around to discover more about PayPal Working Capital and Business Loans, their uses, and eligibility criteria.

PayPal Working Capital Loan Explained

To meet your short-term cash needs, PayPal working capital loan is your best bet. You can borrow money from the company to pay for the raw materials, machinery, and issue paychecks to your employees. The flexible repayment structure makes working capital loans ideal for merchants that don’t want the burden of repaying a fixed amount every week.

For the repayment, the company calculates the amount based on several parameters, including the lending amount, your total sales, the percentage of the sales you are ready to give for loan repayment, your PayPal history, and more.

Fortunately, PayPal offers a simple and flexible funding process, which doesn’t affect your credit score. If your application is approved, the funds will be transferred to your PayPal wallet within minutes.

How Much You Can Borrow and At What Cost?

The maximum you can borrow from PayPal as a working capital loan is $150,000, which is for first-time borrowers. For the subsequent loans, your limit increases to $200,000. The minimum amount you must borrow is $1000.

PayPal’s working capital is an ideal choice for many. Thanks to its flexible repayment policy and a fixed fee, without any hidden cost or interest. Here’s what it considers when calculating this fee:

Your sales and account history on PayPal
The repayment percentage from your sales you request
Your advance payment

PayPal automatically deducts a percentage of your income from the sales until the entire amount is paid in full. This means you won’t pay the loan if you didn’t make any income, although merchants are supposed to pay a minimum loan repayment amount every 90 days (in case they didn’t make any sales for the three months).

The repayment amount in that case is 10% of your cash advance. PayPal allows merchants to repay the loan money in advance without incurring any extra charges. Fortunately, the fluctuation in your sales volume or revenues won’t impact your repayment percentage. Once it’s fixed, you can rest assured that the same repayment pattern will be followed throughout your repayment plan, i.e. until the loan is paid.

Requirements and Eligibility

As mentioned before, whether your application is accepted or declined is determined based on your history with PayPal, current sale volume, and intended use of its working capital, etc. You don’t need to show your credit score or any credit history for approval. This means that most merchants with a registered business and a PayPal business or premier account are eligible for PayPal working capital loan. But there are a few conditions, such as:

You need to sign up for the PayPal Business or Premier account and use it for at least three months to be eligible for its working capital loan.
You must process sales worth $20,000 (Premiere Account) and $15,000 (Business Account).
You must not have any outstanding PayPal loan at the time of application.

Since PayPal will deduct money from your revenue through the app, it doesn’t require any extensive documentation. There’s no rigorous underwriting required, either. As a result, the application is approved quickly and the funds are available in your PayPal balance within a short period. PayPal doesn’t work on the interest model. Once you have paid the fixed fee, you can repay the loan amount in multiple installments or in one go (whatever you prefer).

PayPal Business Loan Explained

Starting from $5000 to $10,000 for first-time borrowers and up to $150,000 for repeat borrowers, PayPal business loans are for small businesses that need to expand their operations outside the geographic boundaries, implement new technology, or install the latest equipment. Like Working Capital loans, PayPal business loans do not come with any additional fee for early payment or payment processing. You only pay a fixed fee. You can check your eligibility for small business loans without affecting your credit score.

However, unlike Working Capital, small business loans are fixed-term loans where you make predictable payments weekly. With the fixed fee structure, you will have peace of mind knowing the total you will pay monthly. The PayPal business loan has different eligibility requirements than its working capital counterpart.

Eligibility for PayPal Business Loan

PayPal doesn’t require any extensive documentation or paperwork to approve your loan application. Based on your profile, it will pass your application if you meet the following conditions:

You must be running the business for at least nine months.
Your revenue from the business should be $33,300 or above.
You should have a FICO score of 580 or above.
You have a PayPal business account.

You can choose the term of the loan, which can be anywhere between 17 and 52 weeks, depending on your loan size. Read the term and conditions of the loan. If you agree to the fee and repayment structure, you will get the amount transferred to your PayPal the very next day.

To check whether your business is eligible for the PayPal business loan, you can use its website.

How to Apply for a PayPal Business Loan?

PayPal has a 5-10 minute questionnaire that will help you know your business’s eligibility for the loan. Once you have selected the term and loan amount, you can sign a contract with the company electronically, allowing it to automatically deduct the fixed amount weekly from your linked bank account. You select the day when the weekly amount is withdrawn from your bank. Here are the steps for applying:

Log into your PayPal account using your login credentials
Verify your business and contact details. PayPal requires this information to check your credit and eligibility for the loan.
Although there’s no additional documentation required, PayPal might request you to submit more information, such as your bank statements, credit score reports, etc. Keep these handy.
If your application is approved, you will get details of the loan. Check the details and agree only if you believe the loan terms are flexible.

Business Loan Vs. Working Capital: Which is Better?

To know which loan is better, you need to first understand the difference between the two.

Loan Amount: In PayPal business loans, you can secure up to $150,000 if you are a repeat borrower or $100,000 if you are borrowing for the first time. The limit for the Working Capital for repeat borrowers is $250,000, while first-time borrowers can apply for a loan up to $150,000.
Funding: You will get funding within minutes of approval for a working capital loan, while the same for a business loan may take a day after your application is approved.
Credit History: A PayPal business loan requires your credit reports and credit history, as the payments are deducted from your bank account. A working Capital loan, however, doesn’t require any credit history.
Repayment: The loan is deducted from your revenues on PayPal if you choose working capital. The repayment plan is flexible. In business loans, however, a weekly payment is deducted from your bank account irrespective of how much you earned for the week.
Eligibility Requirements: You must report an annual income of $33,000, have a 9-month-old business, and have a PayPal business account to qualify for the business loan. For a working capital loan, you must have a PayPal business or premier account, which is at least three months old and a record of processing $15,000 in sales on PayPal in a year. If you have a Premiere account, the sale must be at least $20,000.

Are There Any Risks?

Although PayPal payments are flexible, the term for the PayPal business loan is quite short compared to the other loans offered by banks and private lenders. Besides, there’s no information on the fixed fee available on the website. You need to submit an application first to know how much you will repay. Also, you don’t get any advantage for paying early. There’s no fee deduction. Lastly, the borrowing limit for first-time borrowers is pretty low.

Bottom Line

Finding a loan provider with a bad credit record or no credit history is pretty challenging for small business owners. If you use PayPal to conduct monetary transactions, you might be eligible for either of its loans. PayPal’s funding within 24 hours seems pretty impressive for businesses that need immediate financing. However, if its term and fee do not seem suitable, you can consider alternatives, like business lines of credit and invoice financing.

What Is A Merchant Cash Advance?

Many startups fail within the first year of commencing business. One of the leading causes of this significant rate of failure is a cash-flow shortage. The inability to meet the operational expenses can result in a disturbed cash flow, affecting your routine business operations. Not having enough cash to pay for the inventory, employees, and other working-capital-related expenses will make it difficult to operate a business.

The easiest and fastest way to deal with cash flow shortage is the merchant cash advance. While it can help fix your capital-related requirements when required, this type of funding is pretty expensive. It’s advisable to borrow loans for small businesses or consider other funding options and keep merchant cash advances as your last resort.

If you are wondering what a merchant cash advance is, how to obtain it, and what are its pros and cons, you have come to the right place. In this post, we’ve explained all you need to know about a merchant cash advance.

What is Merchant Cash Advance?

MCA or Merchant Cash Advance is an alternative funding option for small businesses that are in need of instant cash. The lender evaluates your credit card statements to see your repayment capacity and the total amount you need. Your credit score, existing debt, and the financial health of your company are also factored in when calculating MCA.

The difference between a traditional transaction and MCA lies in the repayment method. Note that the merchant cash advance is an unsecured form of loan, which is repaid using a percentage of profit from your sales, plus a small fee. It’s a good alternative to traditional loans for small businesses that accept credit/debit card payments.

It’s a contract signed between an MCA lender and the buyer where the latter agrees to pay their future sales, including a fee. You are also supposed to pay interest on this amount, which may vary from state to state.

How does the Merchant Cash Advance Work?

MCA is not a typical business loan that you have to repay within the specified period and a fixed interest. It’s rather instant cash help from a lender, who buys you future sales. This means your lender expects to be repaid from your future sales with interest. The lender waits until cash starts flowing in. The repayment works in two ways explained below.

The standard method to repay MCA is by allowing the lender to deduct a percentage of your debit/credit card sales until the full amount is paid. The payment is structured either on a weekly or monthly basis.

The major benefit of MCA is that it doesn’t include repayment terms, which are a part of typical business loans. You can repay the advance in 3-18 months or take longer, depending on your total sales and lenders’ expectations. It also depends on how fast you can generate profits. The more card sales you generate, the faster you can repay the advance.

Advance is the upfront amount you request the MCA lender to issue to you. This can be lesser or higher than your monthly sales. The advance determines how much you have to pay back and how long you’ll be giving your daily/weekly sales to the lender. Merchant Cash Advance might incur a fee much higher than the standard interest rates at banks.

Alternatively, the lender and the business may decide to structure the repayment weekly or monthly in such a way that a fixed amount is deducted from the business’s bank account, regardless of how much they earn from sales. It’s a fixed repayment plan where your lender gets paid a percentage of the total advance amount every week or month until the advance is paid in full. This payment method is suitable for companies that earn stable revenues and are not dependent on their credit/debit card sales to repay the debt.

This repayment structure also allows you to calculate how long it will take to make the full payment and how much you have to keep aside for the repayment every week/month.

Here’s a simple step-by-step process of how MCA works.

You request an advance from a lender based on your business’s cash flow requirements.
They evaluate your credit profile and lend you the advance.
Based on your chosen payment structure, they will deduct weekly or monthly card sales from your bank.

How Much Does the Merchant Cash Advance Cost?

The repayment amount will be much higher than the advance you borrowed from the Merchant Cash Advance company. The rate may vary from one lender to another, as there is no standard factor fee. Unlike interest rates, factor fee is calculated based on many factors.

The business’s ability to repay the money, its risk level, and the total sales it generates are a few things affecting the factor rate. Ideally, this rate should be between 1.1 and 1.5, but it can be higher depending on your business’ risk assessment. Note that the factoring fee doesn’t include additional fees, such as administrative or underwriting fees, which the MCA company might charge.

Calculating the merchant cash advance is straightforward. You just need to multiply the total advance by the fee (factor rate). Suppose you have borrowed $30,000 from an MCA lender at the factor rate of 1.5. So, your total would be $45,000, meaning you will pay $15,000 in fees. Your APR increases or decreases based on our repayment duration.

Pros and Cons of Merchant Cash Advance

Like loans and other forms of lending, a merchant cash advance doesn’t come without risk. Here are some pros and cons of this payment structure you should know before borrowing.

Pros

Quick Funding: Unlike banks and typical lenders that may take days to accept your application, MCA is a relatively faster and easier method of funding. The lender requires minimal documentation and issues the credit mostly within 24 hours. It’s best for businesses that are in urgent need of cash.
Uncomplicated Requirements: MCAs are for startups, small businesses, and companies stuck in financial difficulties. Since the method doesn’t require any collateral, it’s easier for businesses of any size to obtain credit fairly quicker than typical business loans. The major consideration when issuing MCA is your debit/credit card transactions and the total revenues. The factor fee is calculated based on your sales.
Flexible Repayment: The biggest benefit of Merchant Cash Advance lending is that it takes the “pay a fixed amount within a specified duration” burden off. Your repayment amount is calculated based on how your business is performing. So, you can rest assured that you won’t have to pay a fixed amount.

Cons

Expensive: The fast financing and fewer documents requirement come with a high APR. As compared to the traditional loans that have 9-99 percent APR, the merchant cash advance is extremely expensive with the APR going up to 350%. Of course, it depends on many factors, like your repayment term, total revenues, etc. But, it’s mostly higher than loans and lines of credit.
A Complex Debt Cycle: Since MCAs are paid daily, they are highly likely to affect your cash flow. Not just the frequent repayment, but the high overall cost can take a toll on your financial health. Besides, it can trap you in a debt cycle. The problem arises when you need more money, but your financing options will be limited because of the MCA.

Defaulting on a Merchant Cash Advance (MCA)

Banks and financial institutions offering business loans and other forms of credit have an agreement, which is followed if the borrower defaults on a loan. Usually, their properties or physical collateral are forfeited. Since MCA lending is not associated with federal regulations, defaulting on this credit can have a worse effect on your business than a typical loan.

If you believe you are at risk of defaulting on the payment, you can reach out to the MCA company to discuss options to restructure payments. They might hold your payment for a while. Or, you can get a traditional loan from a bank to repay the MCA with the factor fee. One of the many drawbacks of MCA is that it doesn’t include any physical collateral or a written clause of what happens if you default on the payment.

Qualifying for this instant cash advance is fairly easy, but if you don’t qualify for it, there are other alternatives available. Some banks or private lenders might offer you a loan at a negligible interest rate.

Bottom Line

Merchant Cash Advance can help businesses generate instant cash when needed without carrying the burden of repaying a fixed amount at regular intervals. Fewer documentation requirements make it the most attractive option for borrowers, but with that comes certain drawbacks.

MCA is not just expensive, but it can lead to detrimental consequences if you default on the payment. The lack of regulation gives lenders an opportunity to get their advances back by any means. So, it’s advisable to consider its requirements and payment terms before requesting an advance.