Using a Merchant Cash Advance Wisely
When your business needs additional funds, what’s the first thing that comes to mind? Many businesses go straight to traditional bank loans. While banks tend to offer exceptional rates and terms, not everyone can qualify. As a business owner, it’s essential to know that you have other options, including a merchant cash advance.
What Is a Merchant Cash Advance?
On the surface, a merchant cash advance (MCA) looks similar to a loan. It’s not a loan, however, but an advance on your future credit and debit card receivables. Rather than making fixed monthly payments, the lender takes a percentage of your daily or weekly card earnings until the advance (plus fees) is repaid in full.
Benefits and Risks of a Merchant Cash Advance
Benefits
MCAs come with many benefits. One of the biggest is that you receive funding quickly. Where traditional loans can take weeks to fund, you can receive your advance in as little as one to two business days. Other benefits include:
- The application process is fast and simple.
- You don’t have to have perfect credit to qualify.
- Payments are based on credit and debit card sales volume.
Risks
Even with many benefits, MCAs also comes with some risks. The greatest risk is that an MCA tends to be more expensive than a traditional loan. Having to pay a fixed percentage of your sales can also be difficult to sustain, especially for younger businesses. If you need to pay around 15% of your daily sales, you may not be able to grow the way that you want.
How to Use a Merchant Cash Advance Wisely
To use an MCA wisely, you should put your focus on expanding your business with what you receive. Since you have to repay a percentage of your sales, you should use your advance to grow your business without sacrificing your income. For instance, using the funds to perform renovations that would close your doors for a while can compromise your ability to repay. Instead, putting the money towards things such as a successful marketing campaign or employee training can yield better results.
Merchant cash advances can be a great financing option for established businesses looking to grow. Newer businesses, on the other hand, might have a more difficult time keeping up with payments. If you’ve been operating for a while and you have stable credit and debit card sales but perhaps aren’t eligible for a traditional loan, an MCA is worth researching. Make sure it’s the right move for your business before you apply.
