The Evolution of Merchant Cash Advances

Posted by Karen Erdelac on Jul 1, 2016

The_Evolution_of_Merchant_Cash_Advances.jpgOver the last 10-15 years, merchant cash advances have grown and changed in ways that make them an even better option for businesses. What has changed to make these easy-to-use funding vehicles more advantageous for businesses that need an infusion of cash?

For one thing, merchant cash advances can be even easier to get than they were years ago. Access to information is faster and easier, so that a decision can be made in hours or days instead of weeks. Rates have also started to come down on many advances, and payback has become even more flexible. The number of businesses using cash advances has skyrocketed in the last 5 to 10 years, but why?

The Impact of the Great Recession

In 2008, the economy began a severe downturn that many are now calling the "Great Recession". Although there were several reasons for the Great Recession, one of the big ones was a credit bubble that led to several major banks needing government bailouts in order to stay afloat. These banks lost millions of dollars because they made too many bad loans -- their credit criteria was not strict enough to prevent a level of defaults that could have put them out of business had the government not stepped in.

The_Evolution_of_Merchant_Cash_Advances2.jpgAs a result of the Great Recession, most banks have adopted much stricter lending policies, including higher credit score requirements, requiring collateral to secure many loans, and other tightened guidelines. Due to increasing regulations on banks, many have also stopped giving out smaller loans (under $100,000) because it isn't worth their time to complete all the paperwork required.

These changes in the credit markets during and after the Great Recession have left businesses scrambling to find sources of financing to keep them functioning well and to help them grow. Merchant cash advances are one way businesses can fund upgrades, growth initiatives, and marketing campaigns as they work to meet their goals.

Reasons to Consider a Merchant Cash Advance

Experts have estimated that merchant cash advances have become a $3 billion per year business, and those estimates could be wildly conservative. More and more companies are jumping into the business finance market, and business leaders like Forbes Magazine have taken a favorable view of MCAs in some of their articles.

There is much for businesses to favor about today's merchant cash advances. Not only are they easy to get for businesses with regular credit card sales, but they offer features you can't find at any bank. Here are a few good reasons to consider a merchant cash advance for your business:

  • Having less than perfect credit doesn't mean you can't get an advance. MCA providers consider several factors, including recent sales volume and number of outstanding invoices, when making their decisions.
  • Repayment is flexible. Because it is based on a set percentage, there is no set date when repayment is due. While most advances are repaid within 12 months, some will take longer if business is slow. Taking longer to repay is not considered negative, as long as the terms of repayment (a set percentage of daily sales) are being met.
  • MCAs help businesses grow. Without a lump sum of cash, many businesses would not be able to upgrade their technology or run an effective marketing campaign, activities that can bring in more business and lead to a pattern of growth. While bootstrapping is a much-admired business practice, it is unrealistic for many businesses to wait months or even years to save up the cash they need to catapault their business to the next level. MCAs can give businesses a faster path to success.

Merchant cash advances are now seen as a major player in lending options for businesses, capable of providing working capital that banks are now too restricted to allow. MCA providers are partnering with businesses to make them even more successful, getting the job done when banks can't or won't. Learn more about Quikstone Capital Solutions's financial products and how they can help your business when you need it.

Topics: Merchant Cash Advance