Sometimes a small business may need an immediate infusion of cash. This can occur due to an unforeseen expense, a critical equipment need or growth opportunity. Regardless of the reason, a working capital advance, or Merchant Cash Advance serves an important role in in small business financing. Speed is the key. A merchant cash advance (MCA) is an alternative to the lengthy approval process and strict credit requirements required for a traditional term loan.
A merchant cash advance (MCA) is not a loan. It is an advance of cash based on the monthly revenues of a company, which is often validated with bank statements or direct credit card (merchant account) receipts. Because a cash advance is not a loan, it will not carry a typical APR (annual percentage rate).
Merchant cash advance providers evaluate risk and weight credit criteria differently than a banker. An MCA provider looks at the daily credit card receipts to determine if the business can pay back the funds in a timely manner. In this case a small business “sells” a portion of future sales to acquire capital right now.
It’s very important small business owners understand that a merchant cash advance is a relatively expensive way to acquire working capital. Because the underwriting is more dependent on the sustained revenue of the business, and less so on credit, , the MCA provider is assuming more inherent risk than a traditional loan would carry. Speed is also a key feature of the MCA. While an MCA may provide funds in as little as 48 hours, this speed and convenience can also lead to greater risk on behalf of the funding company, which again will result in a higher cost of capital. Merchant Cash Advances play an important role in small business finance. Here’s five ways they can help your small business.
Immediate Access to Capital
The main advantage of a Merchant Cash Advance is the speed with which you can acquire funds. Because the advance is against your revenue, credit score is less of a factor and there is much less paperwork and underwriting work to be done. Therefore, the turnaround time to acquire the funds is legitimately 48-72 hours. This is extremely useful in cases where you rely on materials or equipment in your business and either something breaks or you need to acquire new materials fast to finish a job.
Take Advantage of Bulk Discounts
Your small business may have an opportunity to acquire materials in bulk discount or you may have an unplanned opportunity to acquire new equipment at a significant discount. While you may not have planned for a short term purchase of supplies and equipment, if the discount is significant enough, then the long-term benefit may outweigh fees for a merchant cash advance. Because an MCA is approved and funded within days, you can react fast to an opportunity.
If your business is cyclical or seasonal in nature or prone to a downturn you may be able to secure a merchant cash advance to make payroll and carry your business through a cyclical downturn. This can help you retain valuable employees that you may otherwise lose to seasonal or cyclical changes in workload.
Grow your business
You may have an opportunity arise that can help grow your business. This could could be acquiring another business, taking on additional projects or hiring new employees to scale and grow. Regardless of the reason, when opportunity knocks, you may need to react and move quickly, and a merchant cash advance can help you achieve these goals with quicker approval times and faster access to working capital.
Gain Competitive Advantage
In times of turmoil, some businesses will simply not have the ability to survive. It is a sad reality of the Darwinian nature of a capitalist economy. If your business has had documented consistent revenue and sales you may be able to acquire an infusion of working capital that will allow you to grow, hire, take on new business/jobs, run new marketing campaigns for customer acquisition and more. Put simply, when times are tough, smart business owners make strategic decisions that put them in a better competitive position.
The general theme of all benefits of a Merchant Cash Advance (MCA) is speed and convenience. A good provider will work closely with you to ensure they get you the capital you need quickly and for a fair fee. Smart businesses use these funds in a variety of ways but most are doing it so they may grow their business in good times and bad. There are many funding options available to you. Be sure to compare the options and choose the one that suits your specific need.
About Small Business Funding
Small Business Funding is the nation’s premier business advance marketplace. We are the single point of contact with access to multiple funding offers. Small Business Funding helps businesses receive funding needed for payroll, inventory, new equipment purchases, expansion – whatever it takes to make your business successful. We offer multiple funding options to fit your company’s specific needs, see below to learn more about which option might work best for you. Complete our no obligation funding request form or call 800-742-2995 and one of our dedicated Funding Managers will work with you to review the funding options and loan types that best fit your needs.