With the costs of borrowing rising, small business owners have been searching for ways to get loans that are not only cheaper but also more flexible.
What is Merchant Cash Advance?
A merchant cash advance, also called an MCA, provides alternative financing to a traditional small-business loan. With an MCA, a company gives you an upfront sum of cash that you repay using a percentage of your daily sales, plus a fee.
Merchant cash advances aren’t really loans at all – they’re more like sales that happen before credit has been approved by the customer and given their full limits.
Benefits of Merchant Cash Advance
MCA’s offer many benefits over other types of financial assistance available today including being able access funds quickly without having any long waiting periods ahead hoping they come free enough later when applying.
This structure may have some advantages over the structure of a conventional loan. Payments to the merchant cash advance company fluctuate directly with the merchant’s sales volumes, giving the merchant greater flexibility with which to manage their cash flow, particularly during a slow season. Advances are processed quicker than a typical loan, giving borrowers quicker access to capital. Also, because MCA providers typically give more weight to the underlying performance of a business than the owner’s personal credit scores, merchant cash advances offer an alternative to businesses who may not qualify for a conventional loan.
Merchant cash advances are a good option for small business owners who collect payments through cash, checks or credit cards (as opposed to invoices), have a high volume of sales, need funding quickly or who may not qualify for a traditional bank loan.
How Merchant Cash Advances Work
A merchant cash advance company approves your business for a specific amount of funding and provides you with a lump sum of capital upfront. You repay the money you receive, with fees, using a percentage of your future sales.
Because repayment is based upon a percentage of the daily balance in the merchant account, the more transactions a business does, the faster they’re able to repay the advance. Should transactions be lower on any given day, the draw from the merchant account will also be less. This means during times of slow production the business’ payback is relative to their incoming merchant account deposits.
Common Uses for a Merchant Cash Advance
One of the most common reasons a small business owner would choose a merchant cash advance is to access quick funding for short-term business expenses. Other common uses for MCAs include:
- Fill cash flow gaps: Many small businesses experience fluctuations in their cash flow, which makes it difficult for them to pay bills or payroll. A merchant cash advance can function as supplementary funding until cash flow returns.
- Emergency/unexpected expenses: If short-term business loans are not accessible to cover unexpected expenses, small business owners can opt for a merchant cash advance that could get them cash within a couple of days.
- Inventory: For small businesses with consistent credit/debit card sales, an MCA can be used to purchase inventory and then repaid with a percentage of the revenue from inventory sales.
- Seasonal fluctuations: The small business owner’s best defense against monetary loss is an advance on their next payment. This will give them time to juggle some funds and cover any slow seasons with ease.
In a world where interest rates are low because of economic uncertainty, some people may be tempted to take out loans from high-interest lenders. Merchant cash advances are a great alternative.
At Arsenal Funding, we work with you to find the best solution for your business needs. We provide fast capital to small and mid-sized businesses. We use our extensive knowledge and years of industry experience to create a one-of-a-kind approach to partnerships and capital acquisition.
We at Arsenal Funding understand the challenges small businesses find themselves in and provide solutions to help businesses grow and resolve financial issues big or small.