Cash flow problems don't wait. To most small and mid sized enterprises, opportunities seem to come out of the blue and costs strike out of the blue. The old fashioned small business loans usually do not move fast enough to come to the rescue at such times. This is where the Merchant Cash Advances come in. They provide quick funding source in business, which is quick, flexible and realistic in operating business needs.
Merchant Cash Advances are not concerned with long approval processes and stringent credit requirements but are based on revenue performance. This is because banks cannot fill gaps that require rapid capital to enable businesses to continue operating.
Merchant Cash Advances are alternative types of financing that a business makes an upfront lump payment in exchange of part of future sales. Repayment is normally pegged on the daily or weekly revenues in most cases via card transactions.
This is not a loan just like in the traditional US financing models. It does not have a fixed interest rate, does not have a predetermined monthly payment, and does not have a long term debt structure. The capital provider develops and obtains the money back through the income of the business.
This is a very handy tool for businesses that have a constant cash flow but have low cash reserves due to their quick sales.
There is a time when growth happens and when a missed opportunity occurs. Businesses are in dire need like:
Conventional funding options take paperwork, security and weeks to be funded. Merchant Cash Advances are more interested in access. Numerous approvals occur in days and in a few cases within a day.
The speed of them makes them one of the most convenient tools of business funding when they are in dire need of capital.
This is done in a simple manner:
Since repayment varies with revenue, companies are not as stressed when they are slow. When sales dip, payments dip. The higher the sales, the faster repayment is.
This is because of the flexibility, which is one of the defining features of Merchant Cash Advances, as opposed to a fixed-debt product.
Not all businesses would fit on Merchant Cash Advances, but some profiles fit well with this product.
They particularly come in handy in:
Merchant Cash Advances are more open to companies that fail to secure small business loans because they lack credit. The performance is something upon which approval is based, but not credit scores alone.
Small business loans are stabilized and long term planned. Merchant Cash Advances are speedy and flexible.
The following is what counts in the practice:
In the case of businesses that require immediate funding, it may not be practical to wait weeks before the US financing approves them. Merchant Cash Advances come in this void when timing is more important than long term form.
Smart use is critical. Merchant Cash Advances are not supposed to repair long term financial issues; they are supposed to finance the revenue generating activities.
Effective uses include:
Merchant Cash Advances may reinforce business financing cycles and not bypass them when utilized strategically.
Factor rates rather than interest rates are used by Merchant Cash Advance. This implies that the amount that is to be repaid is agreed upon in advance.
In one instance, a company can be given $50,000 and pay back in the form of $65,000. The price is understandable at the outset, but it is also relatively expensive as compared to the majority of small business loans.
Speed, risk, and flexibility mean that higher price. The businesses must compute the cost of using the capital against the cost of the advance of using the capital.
Merchant Cash Advances are becoming increasingly important in the US financing environment. The alternative business funding is still increasing as banks tighten lending standards.
Most companies are integrating several financing options. They can take long term investments using small business loans and short term requirements using Merchant Cash Advances.
It is a combination method that enables businesses to remain flexible without committing to a single way of funding.
Merchant Cash Advances should be disciplined. Since it is an automatic process of repayment, businesses need to make sure that they can afford it.
Potential risks include:
Affordability is checked by responsible providers, yet the business owners need to check their ability as well. Merchant Cash Advances must not be a dependency, but a growth.
Merchant Cash Advances have been on the increased despite the increased costs due to the fact that they address an issue. One of the largest problems faced by small businesses is the access to fast capital.
They offer:
Merchant Cash Advances are the type of business financing that is developed in reality, not theory in a market where opportunity is not waiting.
Merchant Cash Advances provide an opportunity to a business to obtain funds promptly in places where small business loans fail to provide. They are fast, dynamic, and available in terms of the overall US financing landscape. Properly employed and in a responsible way, they can help sustain cash flow, drive development and ensure business continues even in the critical times. Their benefit as a financing solution does not mean to substitute long term funding, but to provide the businesses with the opportunity to do what they need the most at the time when timing is the key factor.
