The financial crisis in 2008 made it much more difficult for merchants and small business owners to obtain traditional business loans. Because of this, the merchant cash advance (MCA) began its rise as an alternative business funding option. Immediately following the crisis, the MCA was a way for businesses turned away by traditional financial institutions to get the necessary funding to keep their doors open. As alternative business funding moves forward in 2020 it has become not only a popular option but for many small businesses, it has become their go-to solution for a variety of business funding issues.
What is a Merchant Cash Advance?
Let’s start with what a merchant cash advance is not. A merchant cash advance isn’t a loan. It is an alternative business funding option that provides business owners with the capital they need without taking on any additional debt. Once approved for an MCA, the business owner receives a lump sum advance. In exchange for that advance, the business owner will remit an agreed-upon percentage of future credit and debit card sales to the MCA provider. Whether you’re experiencing difficulty obtaining a traditional business loan or in need of immediate short term funding to maintain your growth trajectory, an MCA can be a great option.
Merchant Cash Advance Benefits
While it is true that a merchant cash advance can be accompanied by a slightly higher interest rate than a traditional business loan, it offers benefits traditional financial institutions can not.
Quick Funding – Often when a small business is in need of cash, they need it now. Submitting endless paperwork and waiting weeks for a traditional business loan isn’t an option – especially since the chance for approval is usually low. When applying for a merchant cash advance, a business can typically receive a determination in 24 hours and, if approved, receive the funding they seek in only a couple of days. For business owners dealing with an unforeseen emergency or looking to take advantage of an unexpected opportunity to move their business forward, quick funding can be a game-changer.
Less Than Perfect Credit – No Worries – While it is not uncommon for some small businesses to have a short or less-than-perfect credit history, it can be a problem when applying for a traditional business loan. That’s not the case with a merchant cash advance. Because it is an advance on future debit and credit card sales, your credit history is not the determining factor. An MCA provider will be more interested in the revenue your business regularly generates and it’s the ability to continue to do so. Also, an MCA doesn’t require collateral so business or personal assets are not at risk.
Flexible and Convenient Repayment – Because MCA payments are based on a percentage of actual debit and credit card sales, their amount will fluctuate with your revenue. This can help business owners avoid being faced with payments that are more than they can afford. MCA terms and repayment collection methods can vary by provider. Interest percentage rates are typically determined on a case-by-case basis. Payments are typically collected by one of two methods – split withholding or lockbox withholding. With split withholding, payments are made automatically through the merchant’s credit card processor. With lockbox withholding, debit and credit card revenue is sent to a special bank account. It is then divided based on an agreed-upon percentage and the MCA provider and the business owner each has the appropriate amount deposited into their respective accounts.
Alternative Business Funding with CFG Merchant Solutions
A merchant cash advance allows a business owner to get the cash they need without entering into a long term loan agreement or taking on additional debt. If your business needs an immediate influx of cash, this alternative business funding option can be a great solution.
Although CapFlow Funding Group specializes in invoice factoring, in conjunction with our trusted partners we also offer merchant cash advances and other working capital solutions to provide the funding you need to grow your business. We strive to find the best funding solutions for businesses across various industries. Our team will work tirelessly to see you through to success. Contact us today!