MERCHANT CASH ADVANCES – BEWARE!

Q: What should businesses know before taking a Merchant Cash Advance (MCA)?

A: Merchant Cash Advances (MCAs) may offer fast access to funds, but they come at a steep price. Repayments are typically taken daily or weekly as a percentage of sales, which can strain cash flow and disrupt normal operations. The true cost, once fees and holdbacks are considered, can easily exceed 100% APR. Before signing an MCA agreement, make sure you understand the total repayment amount, the frequency of deductions, and how those withdrawals will impact your ability to meet other financial obligations.

Q: What are alternatives to MCAs?

A: Instead of borrowing against future sales, consider invoice factoring, a financing option that converts your outstanding receivables into immediate working capital. With factoring, you’re leveraging money already earned rather than gambling on future revenue. Scale Bank’s factoring solutions are designed to help businesses bridge cash flow gaps without the extreme costs or risks of a merchant cash advance.

Merchant Cash Advances: Proceed with Caution

As inflation tightens margins and uncertainty grows, many businesses face moments when quick cash feels like the only option. That’s when Merchant Cash Advances (MCAs) often appear attractive, but they can be deceptively dangerous.

An MCA isn’t a loan. It’s an advance against future receipts, exchanging immediate funds for a share of your upcoming sales plus significant fees. The repayment terms are aggressive, deducted daily or weekly from your bank account, and failure to maintain those payments can trigger severe penalties.

In many cases, MCA providers require you (and your business) to sign confessions of judgment, allowing them to obtain an immediate court judgment without due process if you default. A single slow week in sales can cascade into financial ruin, personally and professionally.

Before you take that risk, talk to your Scale Bank Relationship Manager. We understand that urgent needs arise, and we may be able to help through safer, more sustainable options, such as a short-term over-advance or other customized financing solutions. Restrictions may apply, but it’s a conversation worth having before you commit to an arrangement that could jeopardize your business’s future.