At the Bronx Economic Development Corporation (BXEDC) we work closely with small businesses, ensuring we provide them with the financial resources they need to grow. Our Capital Access team noticed a concerning trend where small businesses in the Bronx are turning to merchant cash advances (MCAs) for quick access to capital. While these may seem like a convenient short-term solution, they come with significant risks that can undermine a business’s long-term success. The key issues with MCAs are their high cost, short repayment terms and
potential strain on gross revenue.
Unlike traditional loans, MCAs charge fees based on future sales, resulting in annual percentage rates (APRs) that can exceed 100%. Since payments are tied to daily sales, businesses face unpredictable cash flow which can put a strain on operations, especially during slower periods. Additionally, a short repayment option, 3-12 months in most cases, results in a heavy repayment burden. For small businesses already navigating narrow margins, this can create a cycle of debt that can stifle their growth.
Another concern we identified was the lack of regulatory safeguards that other lending products offer. Small businesses may find themselves locked into unfavorable terms, with little to no recourse if they are unable to make repayments. The expediency of these cash advances often
hides the long-term costs that may leave business owners vulnerable.
Fortunately, there are better alternatives that offer businesses more flexible options. One example is the SBA 7(a) loan program which offers a more sustainable option for small businesses. With lower interest rates and longer repayment terms, 7(a) loans are a practical tool for managing and refinancing debt, including that incurred from merchant cash advances. By consolidating MCA debt into a 7(a) loan, small businesses can regain control of their cash flow and focus on growth rather than survival.
At the BXEDC, we encourage small business owners to explore safer, more sustainable financing options. Avoid the short-term expediency that MCAs offer and invest in the long-term health that your business deserves.
Ruvi Lopez is the director of the Bronx Economic Development Corporation’s Empowerment Zone, which includes distressed neighborhoods such as Hunts Point, Port Morris and the Yankee Stadium area of the South Bronx.
