Many small business owners run into cash flow problems that drain their working capital. Even the most successful small business owners still have to contend with seasonality, supply chain issues, and unforeseen issues that disrupt their business and cause their cash flow to take a hit.
And small business owners who are in their first year of business have it the worst. If you are still counting business days or months instead of business years, odds are that you don’t have enough working capital built up to overcome inevitable obstacles and even expected expenses. That can be a real issue for product-based businesses that rely on credit card transactions, like retail shops or wholesalers, because you have to pay for inventory before you can generate cash flow.
Luckily, there are simple solutions for new and established businesses alike. Small business loans can give small business owners the business funding they need to not only survive but thrive. Of the funding options available, merchant cash advance is better than many small business loans, especially if your business relies on credit card transactions. The application process is faster and you can repay the loan without disrupting your business so long as you choose the right company as your business cash advance partner.
What is Merchant Cash Advance?
So what exactly is a merchant cash advance and how does it work? It is a specialized type of short term small business loan that works especially well for companies that rely on credit card transactions. Essentially, you get a lump sum payment to cover expenses or expand your business and then repay the loan by giving the lender a portion of your future credit card sales until you have paid off the principal and interest.
Why A Merchant Cash Advance is A Good Business Funding Option
For businesses that rely on credit card transactions, an MCA is one of the best funding options available, especially among short term loans. That’s because the loan is repaid through your future credit card sales, which gives small business owners several advantages.
The first advantage is that the application process is easier than other short or long-term business financing such as a business line of credit. Because lenders will receive a portion of your future credit card sales, they are much more willing to lend to small business owners who are just starting or have limited collateral to offer. That means you can get the business funding you need faster to start generating cash flow and building up your working capital.
Repaying the loan is also a lot easier and less disruptive for business owners. Because you’re just giving the business cash advance company a portion of your future credit card sales, you know exactly how much repaying the loan is going to cost you and can easily plan around it. As long as your margins are wide enough to support the 10-20% decrease in future credit card sales you can repay the lump sum business loan without your cash flow taking a hit.
Once you factor rates into your business funding costs, the lender can also end up saving entrepreneurs a lot of money as well. They know that you are going to repay the loan using future credit card sales so they will offer much better interest rates and terms compared to other types of business loans where they don’t know when or how you will repay the loan.
Choosing the Right Business Cash Advance Company
There are a few things to consider when deciding between business cash advance companies. The first is their application process. Opting for online lenders can lead to an easier application process and faster approval. Some options have high requirements, such as requiring that business owners have been in business for several years and have a monthly cash flow of multiple tens or even hundreds of thousands of dollars, in addition to having a high credit score. At Capital Collab, we only require that small business owners have been business for six months and have ten thousand dollars in monthly credit card transactions.
The second thing to consider is the terms of the small business loan. The factor rate, or amount of interest over the principal that you will have to pay back, and cut of future credit card sales can vary depending on the business cash advance company and your qualifications.
Different business cash advance companies also withdraw their percentage of the future credit card sales differently. Some set up a merchant account that collects all of your credit card transactions and then gives you the remainder once they’ve taken their share. Other business cash advance companies partner with your credit card company to get their percentage of the future credit card sales, while still others deduct the money from your business checking account after the credit card transactions are processed. None of these options are necessarily better than others but different small business owners care more or less about how much control they have over their cash flow and might prefer one over the other.
Get Approved for A Merchant Cash Advance in As Little as A Business Day
At Capital Collaboration, it is easy for small business owners to get approved for an MCA and receive their lump sum payment so they can start boosting their cash flow and saving up working capital. All you need is 6 months of business records, a personal credit score of 500+, and monthly revenue of $10,000 or more. You can get pre-approved in as little as 60 seconds and receive a lump sum of as much as $1 Million to fuel your business success. See if you qualify today!
