Although cash advances seem to offer numerous benefits, their long-term impacts are generally undesirable. Struggling companies that seek to gain immediate financial latitude or resolve some of their existing obligations often find that taking advances leads them into a self-perpetuating cycle of fiscal ruin.
Startups and other small businesses that haven’t yet established reliable revenue streams may become reliant on cash advances simply to pay their bills. Because these companies are essentially spending more money than they actually have or produce, many find it increasingly difficult to pay their mounting debts.
In some cases, entrepreneurs are forced to seek progressively larger advances just to survive. The interest rates and payments associated with these forms of lending can rapidly consume any profit margins a company makes, especially as debts grow older. Companies that aren’t careful are doomed to join the ranks of the hundreds that must go bankrupt or cease operations prematurely.