From government shutdowns to strict bank lending, the world of working capital seems to twist and turn so often that the entrepreneur can feel like they are on a never-ending rocky road. However, the world of alternative lending is paving smooth and innovative new paths; one of those being the merchant cash advance.
How do you know if a merchant cash advance is the right move for you? Like most things in business it will require effort, energy and an education. Read on to discover the ifs, ands, and buts of a merchant cash advance and watch your ideal funding path start to take shape.
What Makes It Different
A merchant cash advance’s perks tend to lie in its uniqueness. Unlike tradition lenders that impose strict regulations and a lengthy lending process, the merchant cash advance is different.
Most MCA providers pride themselves on high approval rates that require no form of personal collateral or proof of perfect credit. Unsecured loans have the ability to procure a quick turn around time, which means you can get funding in as little as five business days. Also, unlike the rigid terms of traditional lenders, repayment of an MCA works with the flow of your business.
Assess Your Situation
Traditionally, in exchange for the perks, the merchant cash advance path can tend to be expensive. For example, if your MCA is for $10,000 you can expect overtime to payback around $12,500. However, ideal lenders do not feel the payout because unlike large scheduled payments, MCAs are paid back little by little everyday and atomically. Based on an agreed upon percentage of your credit card sales, your MCA will be seamlessly paid back when you conduct your nightly batches.
For this reason, assessing your situation is crucial if you plan to cruise down the MCA path. Merchant cash advances are not ideal for bailouts or sinking businesses. They are designed to make investments back into your business (more on this later). Businesses that are making sales find the quick lump sum of funds ideal for them because their volume can support the short-term window; from beginning to end, MCA’s are usually fulfilled within a twelve-month period.
Investment Is Everything
If you are a growing business, than an MCA is a viable option for you. Banks tend to shy away from candidates that do not have years of profitable business under their belts, however MCA providers understand that growing businesses need bursts of funding to kick start real, measurable growth.
The best way to use MCA funds is as an investment in your business. Hire new employees, make renovations, purchase inventory or implement a marketing campaign. The beauty of these funds is that how you spend them is completely up to you. But if you use it to enrich your soil, your chances of sprouted, palpable growth are that much greater.
Do Your Homework
As the popularity of merchant cash advances increase, so does the pool of lenders. Be sure to do your homework when finding the perfect lender for you and your small business. Find someone who is reputable (from trusted sources like the BBB), someone who has been in the business for several years and who has preferably worked with clients within your industry.
Also, only work with lenders that put your best interest first. Shy away from those that put you under undue pressure by encouraging you to take more than you actually need. Make sure you see and understand all of the terms upfront. The right lender will take the time to answer any and all questions, and will be more than willing to help you out every step of your funding way.
Is a merchant cash advance right for your business?
About the author: Kelly Gregorio writes about small business trends and tips while working at Advantage Capital Funds, a company that provides businesses working capital. You can read her daily business blog here.