5 Times That Your Business Could Benefit from a Merchant Cash Advance
Although cash advances aren’t technically a loan, receiving one will allow you to receive lump sum financing that you use for use for your business. In exchange for the funds, you remit a percentage of your company’s future credit card sales. There are no set terms, so your remittance will be based on your company’s credit card sales at the time. This is great for businesses that have ebbs and flows in their credit card sales; they can remit their advance at the pace of their business.
Cash advances are especially useful if your business doesn’t qualify for other funding options, but you need additional financing to avoid a costly crisis or take advantage of a lucrative opportunity.
To help you understand how a cash advance could benefit your business, we’ll review certain situations in which this type of financing is helpful. Chances are, you have found yourself in one of these situations, and a cash advance could be what you need to solve it!
Your Business Could Use a Cash Advance in These Situations:
1. You Need to Purchase Inventory Prior to Your Busy Season
If your business sells physical inventory, you’re bound to experience shortages from time-to-time. Without enough inventory, you could lose out on significant sales, especially if your business is seasonal. For example, many retailers rely on the holiday season for most of their profits. Without ample inventory, they could lose out on sales during their busiest season.
By using a merchant cash advance, the retailer can make sure their business has enough inventory to meet seasonal demands. Then, the business owner remits periodic payments based on a percentage of their sales. This can work well because you can receive financing quickly while also being able to remit your obligations at the pace of your sales.
2. Your Business is in Danger of Missing Payroll
When you know you’re going to miss payroll, you need to act quickly and decisively. Failure to pay your employees on time may result in costly lawsuits and tax liabilities. That’s why a merchant cash advance can be advantageous. Generally, you’ll get the cash you need within a few days. In some cases, your advance will be funded in as little as 24 hours, but you’re better off acting early just in case there are any delays.
3. You Need to Upgrade Equipment
When demand for your goods is strong, it’s ideal to keep that momentum going by maintaining sufficient levels of inventory. However, you may also need to upgrade equipment, which is expensive. Instead of redirecting your free cash flow from inventory purchases to equipment upgrades, you can use a merchant cash advance to repair or purchase equipment without sacrificing inventory. Plus, since the advance is remitted based on sales activity, if sales stay strong you can fulfill your obligation relatively quickly.
4. You Want To Start a Renovation Project
According to Small Business Trends, the amount of most merchant cash advances is between $60,000 and $70,000. Although this isn’t a huge amount, it can be a great way to get a renovation project started for your business. If you choose to use a merchant cash advance, you’ll probably receive the money much faster than you would if you applied for a traditional loan. Therefore, you could start your project sooner than expected!
5. Your Cash is Tied Up in Accounts Receivable
Per the National Federation of Independent Business (NFIB), small business owners often face cash flow issues due to the lack of an accounts receivables system. If you find yourself short of cash because your customers haven’t paid yet, a merchant cash advance can help. Unlike many types of financing, there typically aren’t restrictions on how or when you can use the funds that come from a merchant cash advance. Whether you need to pay bills, invest in equipment, or purchase inventory, the advance puts cash in your hand while you wait for your customers to pay.
Put simply, the merchant cash advance is a viable option for business owners who need financing quickly. In addition, since remittance is based on a portion of your business’s sales, the merchant cash advance is tailored to the flow of your business.
If you find your business in any of the situations mentioned in this post, you might benefit from a cash advance. Having additional capital can solve a myriad of problems though, so if you have other financing needs, you should still consider this option!
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.