The Merchant Cash Advance – 5 Industries That Can Benefit
With the lack of access to smaller, short term business loans from traditional financial institutions, more business owners are exploring alternative funding options. These options are not one size fits all. There are different funding options, each tailored to meet the needs of specific industries. For those in mercantile businesses that sell the majority of their products or services via debit or credit cards, the merchant cash advance (MCA) is becoming a more popular choice for small business funding.
According to an article from Creditcards.com, 54% of consumers make payments for goods and services using their debit cards, 26% chose to make these payments using their credit card and only 14% specified a preference for using cash. This, along with the reluctance of traditional banking institutions to provide short term business funding, has caused the use of MCA’s in the US to steadily increase in recent years. There are many mercantile businesses that could improve their cash flow and promote growth from this alternative funding option. Keeping in mind the frequency goods and services are paid for with a debit or credit card, there are some industries, in particular, that could greatly benefit from a merchant cash advance.
Retail sales can be a constant roller coaster ride of highs and lows. Despite proper planning, a small business owner can sometimes experience a shortage of cash flow during an offseason. To prevent any interruption to daily operations, cover expenses and retain their core staff, business owners need a way to bridge these short-term financial gaps.
The hospitality industry also experiences seasonal highs and lows. Most hotel reservations are made in advance either online or over the phone and are typically paid for via debit or credit card. While the offseason can be the perfect time to make upgrades to their accommodations, the working capital they have on hand may not be sufficient to cover such projects.
Salons and Spas
The personal care industry is another business sector that receives much of its revenue via debit or credit cards. Salons and spas can see an uptick in appointments throughout the year, especially during prom, wedding and other holiday seasons. Coming off a slower season, it can be challenging to cover the expense of the supplies and payroll needed to meet the higher demand for services. As the salon or spa grows, it may be necessary to expand or move to a larger location. This can also require more working capital than the business owner can use without leaving the business vulnerable.
Whether customers are dining in the restaurant or ordering take out, they are often paying for their meals with a debit or credit card. The restaurant industry can be very unpredictable, impacted not only by the season but also by various trends in cuisine and fluctuations in the economy. In order to sustain the business through industry downturns or expand it to keep up with increasing business, a restaurant owner may need a quick influx of cash.
Auto Repair Shops
Vehicle repair is often a large and unexpected expense resulting in the use of a credit card to pay for it. This is due in part to the constantly evolving automotive technology. To keep up with that technology and stay one step ahead of the competition, repair shop owners are faced with the challenge of keeping their business outfitted with the most up-to-date equipment. The upfront cost of new equipment often requires more cash than they have available resulting in the need for additional working capital.
How does a Merchant Cash Advance Work?
A merchant cash advance isn’t a loan. It is an advanced, lump-sum payment of future sales. In exchange for this advance, the business will pay the funding provider an agreed-upon percentage of future credit and/or debit card sales. Because payments are based on a percentage of actual sales, they flex with fluctuations in revenue. This allows business owners to avoid being faced with payments they can’t afford. Terms may vary depending on the provider and the specifics of each MCA application.
Can Your Business Benefit from a Merchant Cash Advance?
While these may be some of the most common businesses to benefit from a merchant cash advance, they aren’t the only ones. If your business receives the bulk of its revenue from debit and/or credit card payments, an MCA could be the perfect funding solution to ride out a slow season or expand your business.
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!