The time and difficulty involved in obtaining a bank loan has led many small business owners to seek an alternative. Merchant cash advances are a credible, fast and easy way for your business to obtain working capital for growth initiatives, inventory, emergencies, repairs and even operational costs. Here we take a look at how a merchant cash advance works and the many benefits involved.
“MCAs are one of the few sources of financing available to brand-new, bad-credit, or otherwise struggling businesses that are excluded from the traditional lending market.” A merchant cash advance can also benefit businesses that are thriving and looking to grow or expand. The flexibility of how you use your money is far greater than that of a bank loan and allows you to create your own vision for your small business. The application and approval process is also much quicker than a traditional loan, enabling you to seize opportunities as they present themselves.
Traditional bank loans come also come with extremely long repayment terms, which can weigh heavily on your business for an exorbitant amount of time. “Businesses get an upfront sum. To repay it, a set percentage of daily or weekly sales is debited back to the merchant cash advance company (known as the "holdback") until the advance, plus fees, is repaid. The higher the business's sales are, the faster the advance is repaid.”
“Unlike other business loans, Merchant Cash Advances operate on an agreed percentage as opposed to a fixed payment, where the business in receipt of the loan pays a daily percentage on the sales received. This means that during quieter sales periods, the business does not struggle with the return of high loan payments.” Simply knowing you don’t have a large fixed payment gives you the peace of mind to operate your business properly and efficiently without disrupting your supply chain or operations.
Going through a lengthy application process only to be denied can be crippling to a small business. “Chances of being approved for a merchant cash advance tend to be higher. The Federal Reserve’s 2017 Small Business Credit Survey found that 79% of businesses that applied for an MCA were approved, compared to 54% that were approved for a Small Business Administration loan or line of credit and only 50% that were approved for a personal loan.” This is another reason more small businesses are choosing the merchant cash advance alternative.
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