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Let’s cut to the chase, there’s just too much that can potentially ruin one’s chances to qualify for traditional business loans and too many hoops to jump through. Even for those that do receiving business funding from a bank, a lot of time often gets wasted between approval and the actual funding which can be risky to the health of the business. Merchant cash advances are an option available to some businesses.
Why Are Merchant Cash Advances So Popular?
Originally developed for those whose lion’s share of revenue comes from credit cards, MCAs are now available for some businesses. One of the biggest factors behind their popularity is the shorter approval process (one that takes days instead of weeks/months). It also helps that they’re backed up by future revenues, rather than collateral.
How Does a Merchant Cash Advance Work?
The arrangement is simple. Eligibility for funding depends largely on the volume of the sales revenue of a business. In most cases, very little paperwork is involved in the application process. From there, you and the MCA provider work out the terms regarding the amount, term period, and payment schedule.
Funds often times will then be transferred to your account within a week. Repayment is usually based on a percentage of the daily sales revenue.
When Would Be a Good Time for a Business to Utilize a Merchant Cash Advance?
With quick turnaround times and little restrictions on where the money is utilized within a business, a merchant cash advance works remarkably well in taking care of certain business needs which require quick funds. Here are some scenarios where utilizing a merchant cash advance might be beneficial.
–Short-term cash flow gaps: How much time do you give your customers to settle their accounts? Whatever the answer is, deferred (or late) payments can leave you without enough cash to cover regular expenses. That’s not to say that there’s anything wrong with your approach; it’s just that some bills can’t be postponed when they fall due for your company. A merchant cash advance offers the most practical solution for those types of short-term cashflow challenges.
–Product and service improvements: There’s never a bad time to enhance the quality of your offerings. With merchant funding, you can sustain such ongoing efforts without needing to prove your new and improved business model to a bank or loan officer, seeking their validation.
–Equipment purchases: There’s no faster way to access the funds you need to purchase or replace equipment than to take out a merchant cash advance. We see this application often at Platinum Rapid Funding Group as new or more equipment often allows a business to generate more revenue.
–Seasonal Costs: Most businesses know all too well about the importance of expanding operations when anticipating a busy period. An MCA provider can help you cover costs when revenue is variable at different times during the year.
What Types of Businesses and Industries Regularly Utilize Merchant Cash Advances?
Over the years, we’re found that a merchant cash advance can be of use to many types of businesses and especially when faced with some of the scenarios noted above. Having said that, there’s a few organizations and sectors that seem to utilize MCA’s more often than others. These include:
–Restaurants: Success in the food industry depends on the ability to keep up with demand fluctuations. This in turn requires a high degree of flexibility: From food inventory to manpower, there’s a handful of variables that need to be kept pace with the rhythm of a restaurant’s sales. For a restaurateur, MCAs provide the means to make this happen without starving the business of short-term liquidity.
–Retail: The rule of thumb in retail is to always have the right products, in the right quantity, at the right time, and at the right price. Now picture this: you want to restock your inventory in preparation for the holidays, but have just come out of a lull. Whom else better to turn to than someone who’ll provide funds instantly in exchange for your future revenues? This is a very common application for MCAs.
–Auto Repair Shops: With a business model that’s heavily dependent on skilled manpower and equipment, it’s no surprise that most auto repair shop owners are always seeking funding. As irony has it, however, the lack of collateral often translates to automatic rejection by traditional lenders and banks. Merchant cash advances don’t just provide an alternative solution, they’re also better suited to the auto repair industry’s cash flow dynamic.
In a nutshell, the merchant cash advance is more than just an alternative form of funding as it proves a lifeline in unpredictable business situations and can be utilized to fund growth. And when it comes to taking advantage of short-term business opportunities, it quickly emerges as the only realistic option when funds need to be obtained and utilized quickly.