How can cash advances for merchants support small and medium businesses? Many business owners encounter emergencies and unexpected opportunities where a quick infusion of cash is vitally important. Business owners can benefit by treating cash advances as a tool.
Cash Advance Services for Merchants:
Consider a scenario that many small business owners face. The business is less than two years old, and has a decent monthly income. The area depends heavily on tourists for revenue. In June, a massive storm causes heavy damage and chases away most of the potential visitors for the whole season. The business owner stands to lose 30% of his revenue, on top of needing to fix storm damage. His insurance company will only pay $8,000 of the $16,000 repair bill.
This strapped business owner has three options:
- Get a bank loan to pay off creditors and fix up the store.
- Get an advance against future credit card and debit card transactions.
- Hustle to get by with available cash, and a couple of credit cards.
No reasonable business owner would choose the third option. Only a business with excellent credit, at least two years of revenue, or collateral would be able to get a loan at a good interest rate. Very few lenders offer unsecured business loans, and when they do, they can move slowly.
A merchant cash advance vendor can supply an advance against future credit card receipt quickly, if not cheaply. This is why a cash advance is a good option for merchants.
Merchant Cash Advance Industry Expands:
Many financial services firms offer merchant cash advances, online or offline. The industry has grown in both numbers of vendors as the business model for the MCA industry has changed. The first vendors only made advances against daily credit card receipts. Many, if not most MCA firms now make advances against debit card receipts, electronic check payments and transfers from online payment systems like PayPal. The number of MCA providers has soared over the past eight years as well.
Brokers have even gone online to help connect business owners and MCA companies. Though working with a broker is not a bad idea, potential customers need to know they are paying a brokerage fee in addition to the premium and any other application fees.
That ability to buy receipts from a range of sources makes MCA providers an option for most any small or medium business with significant revenue from electronic payments. The only real challenge is to know when and how to make the best use of a merchant cash advance. Then it comes down to selecting the right vendor. Other posts to this blog help business owners do just that. For now, it is enough to know that a hasty decision can lead to excessive costs and disappointment.
Using Cash Advances as a Business Tool:
Merchants need money to solve problems or act on business opportunities. Sometimes conventional funding sources are not available or will not loan enough. A cash advance for merchants in those circumstances will solve lots of problems.