Possibly the best thing about a merchant cash advance, relative to other business funding options, is that a business owner does not have to secure the advance with his or her personal finances.

A merchant cash advance company cannot take the business owner's car or house as repayment of the merchant cash advance. The advance can only be paid back via credit card sales.

That being said, there comes a time in most businesses where a business owner can be in danger of throwing good money after bad. It may be time to throw in the towel, but the owner is so invested both financially and emotionally in the business that it's hard to see the harsh reality.

Here are a few tough questions to ask before taking out a merchant cash advance.

When Good Times Come Again, Is This Business Poised to Capitalize?

The macro-economic outlook obviously affects every business. This has been proven during the recent recession, which has taken a heavy toll on all entrepreneurs.

But before taking out a merchant cash advance or any other form of business funding, a business owner should go beyond the usual platitudes about "times are rough" to really evaluate whether or not, when times improve, this business can improve as well.

This is especially true of restaurant and retail operations, some of the main users of merchant cash advances. The American consumer may never spend quite as freely as before, so a restaurant or retail store that asks customers to spend freely must be newly examined.

Why is this restaurant or retail shop worth paying more for? Have the proper adjustments been made to be able to capture a more budget-conscious customer?

Does This Business Have the Ability to Pay for Itself Someday Sooner Rather than Later?

Some users of merchant cash advances keep taking advances, and come to rely on them.

A merchant cash advance is a specific product with a specific purpose, to provide working capital. If working capital cannot be effectively translated into a business that pays for itself within a reasonable amount of time, the business probably needs to be evaluated, rather than another advance taken.

Run the numbers on how much sales are needed monthly to get out of the red and into the black.

Is that number definitely achievable? Not possibly achievable, not probably achievable, but definitely achievable? How soon can that number be hit and under what conditions?

Merchant Cash Advances Can Withstand Hard Questions. Can this Business?

The merchant cash advance industry has worked hard for its good name. Honest merchant cash advance providers have no problem looking a business owner in the eye and telling her the absolute truth about this product, hard numbers included.

The business owner, in turn, owes that same respect to herself. Asking hard questions about the business in question can reveal whether or not a merchant cash advance is worth taking out, or perhaps it would be better to make some structural changes to the business itself.

Asking hard questions may suggest new avenues of action for a business. Taking out a merchant cash advance, then, can be a valuable opportunity for a swamped business owner to engage in some much-needed analysis of the business as a whole.

Source

North American Merchant Cash Advance Association