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10 Reasons to Get a Merchant Cash Advance

Updated: Sep 11, 2020

First, a disclaimer. A merchant cash advance is not for every small business owner. Before considering an advance, remember the rule of thumb: Only take what you need, not what you want. You can’t borrow with the hope that you’ll have the money to pay back an advance, you need to be certain that these funds will be productive, and that payback is within reasonable reach.

If you feel comfortable pursuing a merchant cash advance to fill a temporary cash flow gap, cover receivables that are late, purchase an important business item for growth, then there are 10 great reasons why it’s a very good idea.

A merchant cash advance can be a powerful financing tool for small business owners trying to find a reliable source of capital that fits their needs with traditional business financing sources in the middle market drying up.

1. Get the Funding You Need Quickly

Even before you fill out an application, you can find out whether you will even qualify for an advance by taking this survey. Your answers will provide a rating that shows you what lenders will think about you before you even part with valuable personal information.

It only takes a few minutes to sign up with most providers and complete a quick initial application. Once you have supplied everything necessary to underwrite your funding request, and assuming your application is solid, you can get the business funding you need - sometimes within 24 to 48 hours after your application is approved.

Sometimes the entire process can be completed in less than a week. Compare this cycle with a traditional bank loan or line of credit, which can take months just to be approved, let alone funded. For business owners who are strapped for money, a merchant cash advance can provide them with the capital they need in a fraction of the time.

For small business owners coping with equipment maintenance, sudden emergencies or even just covering payroll until the busy season starts, they know that traditional financing sources just cannot compete. Getting a merchant cash advance is a great way to get the funding they want without the wait.

2. Keep Control Over Your Remittance Revenue

Usually when businesses borrow, their traditional lenders see the money before they do. Some lenders require an escrow account for revenue to pay down the debt before it can become revenue for the business.

With a merchant cash advance, your remittance money is already your money. Merchant cash advance providers make sure that the debt payments come out of your invoices, not your profitability.

Payments on merchant cash advances are typically deducted daily, which provides an easy way for you to track the cash flow that comes out of your bank account daily.

3. Less Stress & More Time

Money comes and goes, but time is a commodity that can never be regained. Searching for a steady, reliable source of business financing should not consume all the precious hours in a workday.

"Money comes and goes, but time is a commodity that can never be regained."

If you need to pay bills or make payroll, don’t stress out about it. Do something about it with a merchant cash advance. Simply apply and with proper documentation, provide the necessary financial documents to assist the underwriting process and get back to what you do best: running your business.

4. Control Your Cash Flow

Every business lives and dies by its cash flow. But when it comes to traditional financing, borrowers may find their cash flow impeded by large monthly payments or onerous conditions imposed by the lender. After the financial crisis in 2009, most banks required almost a one-to-one deposit to loan ratio, meaning you had to have as much cash on hand as you were looking to borrow. The obvious reaction from borrowers was something to the effect of, “if I had the money in the bank already, I wouldn’t need to borrow it!”

"Every business lives and dies by its cash flow."

A merchant cash advance, however, is flexible financing. Done wisely and within your means, a merchant cash advance can serve as part of your overall financing strategy. It can be your Plan B for emergencies. Or it can help you chip away at long-term debt or help you take care of a nagging project.

5. Transparent Underwriting & Fees

One common misperception about merchant cash advances is that they have heart-stopping high fees. This is not always the case.

But the fees incurred on a merchant cash advance can vary depending on several factors including the industry, prevailing advance rates, the borrower’s creditworthiness, the number of invoices submitted per period, and outstanding invoices. The more invoices you produce, the more deposits you take in and the better your credit rating, the more advantageous the rate.

There are some bad actors in the merchant cash advance industry so it’s wise to look around for the best deal possible. However, it’s important not to submit applications to multiple lenders because you run the risk of multiple credit pulls on your profile. A good provider will work with small business borrowers to make sure that they know exactly what these fees entail and to minimize the impact these fees may have on their bottom line.

6. Adjust to the Seasonality of Your Business

A good lender fully understands your business’s financial standing, creditworthiness, experience and collateral because they can affect your ability to pay down your debt.

If your business has seasonal fluctuations, you want your lender to be aware of them, too.

For example, the financial profile, creditworthiness and seasonality of a heating oil company in Pennsylvania will significantly differ from a surfing outfitter store in California. Both companies may use a merchant cash advance but how they do it will vary.

"A good lender fully understands your business’s financial standing..."

The fuel company may utilize a merchant cash advance to hedge against supply price changes. The surf shop may use one to replenish its inventory of swimwear, flip flops, beach towels and toys.

7. Maintain Equity & Control

In certain cases, traditional lenders may dictate how you spend what you have borrowed. They may require that you buy new equipment, instead of training employees or even covering their payroll. They can even restrict the use of your existing funds by forcing you to pledge your accounts.

With a merchant cash advance, business owners will not have to worry about signing their life away when they get the funding they need. A merchant cash advance is based upon the revenue of your business, not the equity or valuation of your business.

8. Build a Better Relationship with Your Lender

One common complaint in today’s commercial lending world is the lack of a good relationship between the borrower and the lender.

The days are long gone when the deal was sealed with a handshake. Back then, the lender had a strong responsibility to help the borrower grow their business. The lender did not want the small business to be swindled by undisclosed fees, mysterious charges and confusing terms.

"The days are long gone when the deal was sealed with a handshake."

Good MCA specialists rely on the performance of your advance and, quite honestly, hope you continue to borrow after you have satisfied the initial advance. Most merchant cash advance companies are made of up of entrepreneurs and small business owners also, so they value an ongoing relationship.

9. Gain Automated Support for Processing your Merchant Cash Advance

Having a reputable MCA specialist as part of your business financing team is like adding an employee who takes care of the paperwork, processing and payments. Even the initial stages of compiling the proper documentation can serve as a useful exercise to the business owner.

Be sure to ask a lot of questions along the way to ensure your MCA provider not only understand your business but what they’re offering as well.

A merchant cash advance can help you focus on the things that really matter, such as growing your business, paying your employees or even just spending more quality time with your family.

10. Increase Your Bottom Line

Let’s face it, you spend over 12 hours a day at your business for a reason: to make a profit.

Obtaining working capital when you need it should not affect your bottom line. The process should be fully transparent and negotiated fairly. And it should benefit you.

With a merchant cash advance it’s possible to take advantage of early payment discounts from vendors, get bulk discounts from wholesale suppliers, increase your inventory, stock up for seasonal events or sales, and add staff for more ambitious projects. You will be able to satisfy your clientele and expand your business more effectively.

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