If you own a small business, you must have encountered financial deficiency at some point. Traditional loans, like bank loans, are not always feasible because of stringent credit requirements or lengthy approval processes. In such bleak moments, merchant cash advances can rescue you and your business operations. What is this? Let’s understand it first.
A Merchant Cash Advance (MCA) is a short-term financing designed to provide businesses with cash in exchange for a portion of their future credit card sales. Unlike traditional loans, MCAs aren’t based on your credit score but instead on your business’s daily credit card sales. In short, you are giving your future sales to your lender for a short time to secure your finances.
An MCA loans forwards payment to your business against future credit or debit card sales. It typically increases business working capital and covers cash flow gaps. The advance works like this:
There are many pros and cons to consider when it comes to Merchant Cash Advances (MCAs). A few of them are as follows:
The major difference between MCAs and small business loans is their flexibility. MCAs are based on future sales, so you do not have to worry about their instant repayment. You just need to pay a portion of your future credit sales to the lender. MCAs will help you sustain in the competitive market and use funds to broaden your business in multiple directions.
On the other hand, term loans are based on a lump sum amount you have to repay over a certain period. They have different percentages of interest and are due every month. This loan can add to your payables and provide a debt burden you must pay with your business operations.
There are various types of Business Finance Solutions available for small businesses. These include MCA, lines of credit, term business loans, and others. Of these, MCA can be a better option as it is not technically a loan but a kind of partnership in future sales for a short period of time.
MCAs and similar loans are ideal for small businesses and enterprises. In particular, they are excellent for the following industries:
MCAs are ideal for retail businesses that experience fluctuating sales, such as seasonal highs and lows. Payments can adjust based on sales, making MCAs a flexible funding solution, especially during slow periods or when starting a new retail store.
The restaurant industry benefits from MCAs by gaining access to flexible working capital. This is specifically useful when facing unexpected expenses like equipment failures, allowing restaurants to address urgent needs without disrupting cash flow.
MCAs can also benefit the medical industry, which often requires costly equipment that is essential for operations. These advances provide a quick and flexible solution for covering expensive, necessary purchases, ensuring uninterrupted service delivery.
A merchant cash advance is a perfect option if you need cash instantly and can’t secure other forms of credit. However, it’s critical to ensure that the MCA costs make financial sense for your business. Because they’re typically easy to obtain, they come with a premium cost and can cause cash flow problems down the road. You must make a decision by carefully considering all the facts.
If you are considering MCA for your small business, you must be looking for a suitable company to take a loan. Purple Tree Funding understands all the anxiety surrounding loans and their constraints. We offer loans on collaterals with the most simplified process, almost no terms and conditions, and lower interest rates. So what is better than getting a loan in 48 hours rather than lengthy paperwork? Get in touch with us and start your dream business now!
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