Understanding Your Options With The Merchant Cash Advance
February 21, 2014
Guest post by Kelly Gregorio
As an entrepreneur you’re constantly on the lookout for ways to get ahead. Investments, growth and productivity are keys to your business’s overall success. Unfortunately when it comes to securing additional working capital, the traditional avenues seem to put up roadblocks for the small business community (with demands like perfect credit and upfront collateral).
However, there are alternatives. Some, in fact, that were designed with the small business owner in mind; for example, the merchant cash advance. Just as in life and in business, a preliminary education is the best way to guide your decisions. Read on to discover three options that will enhance your understanding of the flexible funding that’s ready to serve your working capital needs.
Option 1: Spending
Applying for a merchant cash advance means that you’re looking for funds anywhere between $5,000-500,000 and with funding in your account as fast as seven business days, speed is on your side. Unlike a traditional lending situation, say for example, grant funding (which would require you to budget out exactly how you plan to spend the funds) the merchant cash advance gives recipients the freedom to spend funds however they choose.
This is because this type of alternative lending is not considered a loan, more of a business transaction. At a discounted rate, lenders make an advance purchase of your future sales and award you with a lump sum of cash.
However, despite the funding freedom, strong investment recommendations cannot be stressed enough. Savvy entrepreneurs look at the merchant cash advance as an investment of money that should in turn, make them more money.
Putting the funds directly back into one’s business is the ideal situation. Examples include inventory and equipment purchases, hiring new employees, making renovations or implementing a solid marketing campaign. With that being said, those who are looking to bail out an already sinking ship would be advised to look further.
Option 2: Repayment
Remembering to circle calendars and mail monthly checks are not required with this type of short-term lending. Instead automatic payments are made out of your daily batches (and are based on an already-agreed upon percentage).
The repayment process of the MCA was designed with small business owners in mind; meaning, it works with the flow of your business. If you have a slower month, your payback for that month will be smaller. However, if business is booming, then your advance will be fulfilled that much quicker. While funding is available year-round, an ideal situation for small business owners would be to take out a merchant cash advance on the upswing of their busy seasons, thus speeding up their repayment process (which typically is fulfilled within six to eight months).
Option 3: Guidance
In the face of a tough economy and even tougher lending environment, the simple and seamless process of the MCA has increased in popularity, especially in recent years. Unfortunately as a result, many bandwagon lenders have been popping up. It’s wise to seek out a lender who has been in this business for a substantial number of years and who preferably has direct lending experience with your specific industry.
It’s important to only work with lenders who put your business’s best interest first. Lenders who encourage you take more than you really need are running the risk of putting your business under undue pressure. Instead, only entertain patient and understanding lenders who are more than willing to guide you through any and all questions you may have. Finally, be sure to do your homework when considering the perfect MCA lender for you, and check up on reputations with reputable sources like the BBB.
What do you know about alternative funding for small businesses?
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About the author: Kelly Gregorio writes about small business topics while working at Advantage Capital Funds, a provider of merchant cash advances. You can read her daily business blog here.
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