How Not to Use a Merchant Cash Advance

The merchant cash advance was created to provide small business owners with an alternative method of business financing. It can be very conducive and can promote business growth and development, if used correctly. Most merchant cash advance lenders set no restrictions on how a small business owner can use a merchant cash advance, but this is under the assumption that the business owner will use the funds to build his/her business.

Using a merchant cash advance for personal pleasure, or even personal emergencies can put a small business in jeopardy and ruin its future.

Below are a few examples of how not to use a merchant cash advance.

Take a Family Vacation

Your business is doing great, your credit score is high and you qualify to receive a $25,000 merchant cash advance. This money could buy you plane tickets, extended hotel stay, transportation and leave you with a couple of extra dollars in spending money for a summer vacation for your family of five.

Taking a merchant cash advance and using the money to finance such as trip may sound like a good idea, and you may even have two weeks of great fun, but what about the consequences? Are you willing to risk your small business’s success for a two-week vacation?

While you are out vacationing, a percentage is being deducted every time a customer swipes his/her credit card for the purchase of a product or service at your business. Since the merchant cash advance is not being used to improve your business, you will not be gaining money by receiving the merchant cash advance, you will not even break even. You will actually be losing money.

Buy The Dress/Suit You’ve Been Wanting

I will admit I am as much of a slave to fashion as the next person is, maybe even more. But when it comes down determining priorities, I know what things are most important to me and when it is not a good idea to make a clothing or accessory purchase.

Say you had an important business meeting coming up or you were planning to attend an important business conference. Then, after making these plans, you realized you did not have the appropriate attire for the events. Your options are one; miss the events and forego multiple business opportunities, or two; buy an outfit or two in order to attend the events. In this case, spending merchant cash advance funds would actually help to improve your business and your purchase could be use for future events as well.

On the other hand, simply making random personal purchases with business funds is not beneficial to any small business.

Buy Christmas Gifts

Do you think your friends and family would rather receive lavish Christmas gifts and watch your business suffer or receive something inexpensive and know that you are financially sound and your business is not in jeopardy? Most family and friends would choose the latter of the two, and so should you.

The idea of the merchant cash advance is to use it to make even more money. You should look at a merchant cash advance as an investment. If your merchant cash advance is not going to be used to make more money for your business, than you should not use one. But, if you have a plan for the funds, it can be a very lucrative business move. The percentage that is deducted from future credit card sales is small and virtually unfelt.