Benefits of a Merchant Cash Advance for Small Business
Benefits of a Merchant Cash Advance for Small Business
5
Jan 2021
24
Jan 2025
As you seek out new financial solutions for your business, you’re wondering about merchant cash advances. What is an MCA, and what can it do for your small business?As it turns out, a merchant cash advance has serious benefits for small businesses. Check out these advantages, and you might be convinced that an MCA is the right move for you.
Funding Based on Your Future, Not Your Past
One of the biggest benefits of a merchant cash advance is that your future is more important than your past. With a traditional bank loan, you must provide your business’s past income and revenue. They’ll also want to see the business’s credit score and maybe your personal credit score.A merchant cash advance, however, is extended on the basis of anticipated future sales. The lender examines your past credit card and debit card sales to make an estimate about what you’ll earn in the future. They offer the advance based on what you’re likely to bring in.That’s great news for small businesses without a lot of history under their belt. Plus, since it’s forward-looking, it takes into consideration that your business is growing. That’s much better than a traditional loan that looks at your past and doesn’t consider your future needs.
You Can Use It for What You Need
A merchant cash advance offers more flexibility to a small business. Some traditional loans will earmark your funds for particular business uses. An equipment loan, for example, needs to be used to buy equipment. A payroll loan must fund payroll.An MCA can be applied to either of these expenses. Since the funds aren’t earmarked, you could use the MCA to help with payroll. Then you could take any leftover funds and put them towards that equipment.You can even use the MCA to help with day-to-day operations. Need petty cash? The MCA’s funds could stock it up. What about keeping the lights on? The MCA could help you with the electricity bill too.This gives small business owners greater freedom and flexibility than other traditional loan products.
A Merchant Cash Advance Offers More Payment Flexibility
Perhaps the biggest benefit is that the MCA gives small businesses more flexibility when repaying the advance.With a traditional loan, you’ll have a set monthly payment. If you experience a poor sales month, then you might only be able to make a partial payment. You might default on the loan or require another loan to pay it back.The MCA is different. The lender takes a percentage of your actual credit card sales as payment. When you have a good month, you can pay your MCA back faster. If you hit rough waters, then the payment decreases accordingly. You don’t need to worry about defaulting on the payments.
Discover the Benefits of an MCA for Your Business
These benefits can make a merchant cash advance the right choice for many businesses, but they’re especially helpful for small business owners.Ready to see what an MCA could do for your business? Get in touch with the experts to get the funds you need today.
Funding is the only way to turn startups into successful businesses. Getting funding is easier said than done. However, it’s a fact that you need sufficient money to get your business to the next level. Investment and funding are required to raise the necessary capital to either initiate or run a business. The working capital is the option on which companies rely for the smooth running of affairs and uncalled crisis. Funding coupled with motivation, determination, and brilliant ideas can kick start the business off the ground. Lack of proper and timely funding can collapse business strategies and decrease capital, which ultimately causes failure. If you’re wondering why businesses consider looking for funding, you’re at the right place. Following are some reasons due to which funding becomes essential for companies.
Development
Growth and development are the foremost motives of a business before seeking funding. Acquiring new clients, local businesses, and marketing to improve outreach are all the prospects of growth. Establishing additional branches and expanding services is also the result of the funding sought for the sake of growth.
Working Capital
Another significant reason for obtaining fundings is working capital. Working capital is the monetary assets that provide the companies with sustainability. Managing regular affairs and retaining the quality of services are done through the working capital. It can be used to stock the inventory and carry out successful purchases by efficient expenditure. Insufficient working capital can cause detrimental effects to the business in the longer run. The current affairs and prospects depend on the working capital, which is provided through funding.
Acquiring Assets
To hold a firm position in the market and among the competitors, businesses need to purchase assets. Eliminating the competitors in the market is the feature of having more assets. Businesses can emerge out as a winner when they become the sole provider of a service. Companies can either buy shares or completely acquire other businesses. Assets not only strengthen the company but also enhance its market value.
Initiating New Ventures
Companies use funding to plant new ventures. These endeavours can promote the business and increase its progress. To conduct these strategic ventures companies, need ambition and funding. They can articulate ambition in their employees, but for funding, they need help.
Boosting Startups
Funding is vital to support startups in the fierce market. Startups usually have scant resources that can soon become insufficient, leading to a business catastrophe. Startups need financial help and investments to accomplish their goals and thrive among the competitors.
Getting an MCA
Companies can find investors that either work independently or with an organization to gain the required funding. They can also opt for loans from banks. However, the much better alternative is a merchant cash advance that focuses on the growth of a business. Companies prefer MCA as the conditions of the loan are appropriate to their predicament. The best part about getting an MCA is that paying it back is extremely convenient. You’ll only be paying back a specific percentage of your monthly earning. And, if there’s a month where you don’t generate revenue due to whatever reason, you won’t need to pay the finance company back anything. Receiving timely fundings can save companies from derailments. If you’re looking for a financial organization that can get you the resources you need to boost your business, 2M7 is just the company you should work with. We’ve helped hundreds of companies like yours in the past with our incredible 97% approval rating. We offer merchant cash advances to businesses in all industries and of all sizes. Gain an edge over your competition and contact us today.
A big part of business is focusing on profit margins and productivity, but keeping a business operating healthily gets a bit more complicated than that. One of the concepts you can’t afford to neglect is working capital.Working capital is a necessary data point for any business, and while sometimes it’s taking a bit more time to understand, it is absolutely crucial for maintaining a healthy balance sheet and operating effectively.We’re going to go over what working capital is, why it’s important, and some of its uses in the business world. Let’s get started.
What is Working Capital?
Working capital is essentially what you have left after taking out all the money you need to pay the bills. Think of it like you would in your personal life with a normal job. You get paid, you add up all your household bills and debts, set that money aside to take care of those necessary expenses, and you can work with whatever you have left. If needed, you also have assets you can leverage such as your savings, valuables, and other things that can help beyond the cash you have on hand.In more professional terms, this is everything you have, assets and cash on hand, minus the liabilities you have such as credit card debt, the bills necessary to keep the business running, payable taxes, and more.How you determine your overall working capital is by adding up your assets and financial resources and subtracting the total amount required to pay your expenses.We’ll keep it easy with solid numbers, but your actual calculation will likely be slightly more complicated.Let’s say you add up your assets and have $100,000 in value. After you add up your liabilities, you calculate that you have $50,000 to pay in total. $100,000 minus $50,000 is $50,000. That's your working capital.
Why is Working Capital Important?
Working capital is important in two main ways. At a first glance, it seems as if having as much of it available as possible, but that’s not quite accurate. Let’s go over both ways it can go and why balance is important.
What is Negative Working Capital, and Why it is Important?
This is the primary concern most business owners are going to have, and it’s certainly one that is most immediately noticeable.Negative working capital is when you use the formula we provided earlier, and you don’t have enough to cover your liabilities.That means you don’t have enough to pay your bills, essentially.If you don’t have the capital available to pay off your liabilities, you certainly can’t commit to any sort of growth, and the immediate future of your business doesn’t look promising, either.There are solutions to this that we will talk about later, but this is the worst-case scenario in a lot of situations.
What is Positive Capital, and Why it is Important?
Positive working capital is the opposite of negative working capital. It’s when you do have some resources left over to work with.For example, if you were the average homeowner working a normal job, you’d have some money left over after paying bills. Not all of it is “take home money”. Some of it has to go into savings in case you plan something big, like a major family trip abroad. The same concept goes for positive capital in business.That doesn’t mean that having it in extreme excess is optimal, though. In fact, it can mean that you’re making poor business decisions.If you regularly have way more working capital than expected, it typically means that you’re not taking advantage of growth opportunities, low debt situations, and other crucial parts of the business world.In the long term, this can mean that your business growth stagnant and that excess will start to decline eventually. It can also mean that you’re not providing reasonable upkeep for your business, which has major consequences, or it can mean that you’ve failed to account for various liabilities and your results are false; which is a major accounting error.In the vast majority of situations, you want to have your growth goals in mind, and you want enough to facilitate those goals. It’s also “working” capital. So, make sure it’s working for you.
How to Increase Working Capital for Higher Growth Potential?
Whether your business has a negative working capital amount, or you simply have larger growth goals you want to accomplish, increasing your working capital is usually going to be attractive. As long as you’re actually using it.Doing that can be difficult, but there are some key data points to target and strategies to use.Primarily, you’ll have two core options: You can increase the number of assets you have to offset your liabilities, or you can get rid of some liabilities such as debts that are close to being paid off.
Increasing Working Capital Assets:
Increasing your working capital assets is going to focus on improving your margins. The larger your margin is, the more working capital you’ll have left over assuming you don’t increase your liabilities. This is essentially the same as telling you to "earn more money”, which isn’t very constructive if money is the problem in the first place.If you’re already generating positive working capital, focusing some of those resources on short-term growth that helps with your margins is a strategy you can use. However, that’s a problem if you’re in the negative since you don't have anything to work with.For example, let’s say you have positive working capital, but you don’t have enough to focus on your goals. You might not be financially capable right now. Instead, pump some of that into marketing a big sale, increasing your inventory in high-demand areas, and similar things to earn more working capital.That’s where a working capital loan comes in, and we’ll get to that shortly.
Decreasing Liabilities to Gain Working Capital:
The other way to earn more working capital is to get rid of liabilities where possible. If there is debt that can be paid off in the short term, paying that off frees up a little more to go toward working capital amounts. If you can lower your tax liability, that’s another way to keep a bit more of your margin.It can also be possible to delay purchases. While growth is the ultimate goal, if you’re struggling to maintain a healthy balance sheet, delaying purchases until you can generate more working capital to accommodate them is crucial.For example, let’s pretend you’re a restaurant. You’re moving around $50,000, but after you pay your vendors, staff, and landlord, you’re only keeping $10,000, and that’s your networking capital. If you can consolidate some of this cost, for example automate ordering process and reduce waiter’s team, you can lower the liability cost and generate more profits.Again, this is something that a working capital loan can help with if liability removal strategies aren’t working or aren’t feasible.
What is a Working Capital Loan?
Alright, we’ve talked about a variety of issues that can pop up with working capital and damage your ability to grow, but now it’s time to start talking about real solutions.There are a lot of situations where you just don’t have any room to work with. You can’t boost your assets, because you don’t have capital, and you can’t remove any liabilities, because they’re all long-term, non-negotiable, and absolutely required.So, how do you get over that speed bump?Primarily, you can get a working capital loan.A working capital loan is a loan used to overcome cash flow problems; but it’s not just used in negative circumstances. Any business owner can benefit from one at a certain point, and it can be a positive experience.Here are some of the ways it’s used.
1. Funding Growth Goals
Sometimes, you’ll have growth goals, and you’ll have positive working capital, but you just don’t have enough funds. In that circumstance, you can use a working capital loan to get that extra bit of funding you need in the short term.For example, let’s say it’s the perfect time to open a new location, but you’re $20,000 short on the overall costs. A working capital loan can help.Of course, the payments will become liabilities later. So, it’s best to be in a relatively healthy position when using a loan for this purpose.
2. Overcoming Financial Speed Bumps
Every business will experience a speed bump in its financial growth at some point. Take COVID-19 for example. Nearly every business went from doing great to suddenly seeing a drop in assets for one reason or another.A working capital loan can help overcome those bumps.If you go into the negative slightly, you can get a working capital loan that helps you remove smaller liabilities and invest in ways to build up non-depreciating assets to grow your margins.There are strategies involved in using a working capital loan this way, but one can save a business and keep it above water in such situations.It’s a lot like when you accidentally spend too much of your check as an average person, and your car payment is coming up. You don’t want to lose your car. So, you get a personal loan to cover it until you’re in a better situation.
3. Waiting on Invoice Payments
In an ideal world, all customers would pay on time, and you’d know exactly when funds were going to arrive. Unfortunately, that’s not how it works.Sometimes, you’ll technically have plenty of working capital on the horizon, but invoices just aren’t getting paid on time.A working capital loan can work like an advance on those invoices to make sure you’re still able to make moves while you wait.
4. Taking Advantage of Opportunities
Sometimes, you’ll be presented with opportunities you don’t want to pass up. For example, maybe you rely heavily on a supplier’s hardware for one of the products you manufacture. For a limited time, they’re offering half-off on bulk shipments of that hardware.That can allow for tremendous savings in the future and a lot of potential for growth. However, you might not have the ability to fund it without throwing your balance sheet off balance.This is another situation where a working capital loan can be the little edge you need to come out on top. Its fast, gets the job done, and keeps you from missing such fruitful opportunities.
Understanding the Working Capital Cycle
Beyond noticing problems with your working capital and finding solutions, you’re also going to want to look at the working capital cycle. This will help you predict when you’re going to have certain assets available, and that allows you to plan for them efficiently.The working capital cycle is the time it takes for your assets to become cash that can pay off your liabilities.For instance, think about the customer invoices for a subscription service. You know that 1000 customers are set to pay their invoice on the 30th. That means that, while you have those accounts as assets, they aren’t realized yet. You don’t actually have the money. The time between now and those payments clearing is your working capital cycle. After the 30th, you would be able to pay your liabilities in this scenario.As such, you want to streamline your working capital cycle as much as possible to ensure everything is moving quickly and efficiently.The best way to do this is to ensure that your customer payments are covering your liabilities. Since waiting for accounts to clear usually takes the longest, ensuring that they pay the liabilities off allows your other assets to simply keep growing and building up more working capital.
The Risk of Certain Working Capital Assets
You’ve probably put together a decent understanding of what working capital assets are at this point. If not, the basics are your customer invoices, inventory, cash, and pre-paid debts.One of those is somewhat volatile, and you shouldn’t aim to build much of your working capital on it. That’s your inventory.Your inventory can be a risky asset. It can become obsolete, depreciate in value, and dramatically impact your working capital amount without any chance of turning into cash. Take fidget spinners for example. During the craze, everyone stocked up on them. That was almost guaranteed cash flow. However, when the trend stopped, that inventory became largely useless. Anyone with too much inventory consisting of that product saw their cash flow tank.This can happen with anything. So, it’s important to understand that risk, diversify assets, and have a solid plan to use your inventory; not just stockpile it for perceived working capital.Think of all the people who bought into Beanie Babies in the 90s, and then think of what happened a few years later when no one cared. The Beanie Babies represent your inventory, and no one caring represents your entire inventory devaluing like crazy. You don’t want things sitting around unless they are guaranteed to be necessary for the future.
The Three Types of Working Capital and How to Differentiate
Finally, there are three types of working capital, and while they all generally work the same way, you will need to differentiate between them.
1. Net Working Capital
This is all the working capital you have at your disposal, and it’s the general number that you’re going to want to keep tabs on.
2. Temporary Working Capital
This is your working capital amount in temporary situations. Think of things such as the speed bumps we talked about earlier, or maybe even expected boosts such as holiday sales. Since the causes for the fluctuations are temporary, you have to work that into your understanding of your working capital during that time period.
3. Permanent Working Capital
The name of this one is misleading. It’s not the amount you’re guaranteed to have all the time. It’s the amount you absolutely need to make it. If you make less, your business’s health starts dropping, and you either fix it or lose it.This is the bottom line of what you need to barely get by, and you want to calculate it regularly since your liabilities and assets will change regularly.
Get a Working Capital Loan with 2M7 Financial Solutions
If you’ve gone through this brief guide and realized you could really use a working capital loan to help your business for any reason, contact us to start the process.We specialize in advanced loans that can help your business seize opportunities, fix temporary problems, and continue operating in a healthy state.
With COVID-19 vaccines being administered all around the world, it's only a matter of time that businesses resume their work in the field. While corporations will have little to no hurdles, it will be small businesses that will have to make more effort. You don’t need to be an expert to understand these issues in today's economy. Some help in reopening will allow any sort of company to see instant results if capital is invested and used effectively. This is where merchants cash advances come in. An MCA works very differently. You’re receiving funding from a financial solution business. However, the perk of getting an MCA is that you only have to pay it back from a percentage of your sales. If you aren’t making any sales, you won’t have to pay back anything. So, if that doesn’t sound like a reasonable enough argument to make you get an MCA to nudge your business in the right direction, let us continue. Here are five reasons why cash advances will work in our company’s favor.
Easy to Qualify
Today's economy makes it troublesome for businesses in terms of finance. Conventional loans have rigid requirements that are turning people away. Moreover, they take more time, and sometimes your request may be denied. Merchant cash advances are more viable as they offer a sum of money at a fixed rate, and are easy to qualify for, even for first-time owners. While bank loans require hours to fill out, these applications contain brief questionnaires, prioritizing output rather than processing information. Expand Office Space Upgrading your office will be one of the heftiest investments you’ll ever make. But, it’s a necessary one. If your office space no longer meets the requirements of your business, you have to move into something that’s more fit to your needs. However, it’s not cheap. Moving into a new office requires a ton of money upfront. An MCA can be a great way to complete the down payment and move into the new office.
Quick Funding
Traditional bank loans have an approval time for weeks, and it is not even certain if your application will get accepted or not. If you don’t want to get caught up in those waiting times, an MCA is the best option. Funds from an MCA could reach your account the same day as your application is submitted!
Works Despite Credit Score
There are cases when businesses are in a stable situation and may have a poor credit score. In such cases, qualifying for a loan is impossible as banks want a surety that you are a viable candidate for receiving money. A history of bad credit is a red flag that tells a bank you won’t be able to repay the loan. An MCA gives you a much reliable alternative for cases where credit scores are low. There will be some things that will change but you will still be entitled to receive a cash advance!
No Restrictions
With bank loans, there are a ton of rules and regulations that restrict you from spending your money on certain places. With an MCA, there’s no such limitations. You’re free to invest your advance into anything as long as it helps in the growth of your business. An MCA can help elevate your operation to new heights with greater flexibility and opportunities. If you’d like to learn more about obtaining a merchant cash advance for your business, 2M7 Financial Solutions is here to help. We offer merchant cash advances to businesses in all industries and of all sizes. Gain an edge over your competition and contact us today.