Running a successful business requires a steady flow of capital to fuel growth, seize opportunities, and navigate unexpected challenges. However, securing financing can be a daunting task, especially for businesses with less-than-perfect credit scores or limited financial histories. This is where merchant cash advances (MCAs) step in, providing a lifeline to businesses needing quick and flexible funding solutions. Jay Avigdor, President and CEO of Velocity Capital Group, shares his insights on all things MCAs.
So, what is a Merchant Cash Advance?
A merchant cash advance is a form of financing that offers businesses an alternative to traditional loans. Unlike conventional lending, MCAs take a more holistic approach to evaluating a business’s creditworthiness. “They look to the future potential of a business, making them a viable option for entrepreneurs looking to overcome financing hurdles,” says Avigdor.
How does a Merchant Cash Advance work?
“The process of obtaining a merchant cash advance is straightforward and efficient. Instead of a loan, the respective business receives capital for a percentage of its future sales,” says Avigdor.
The MCA provider purchases a fixed portion of the business’s anticipated credit and debit card receivables at a discounted rate. Repayment is made through a predetermined percentage of daily or weekly sales until the agreed-upon amount is fully repaid.
Advantages of Merchant Cash Advances:
- Accessibility: MCAs accommodate businesses with lower credit scores or limited financial track records. By focusing on future sales potential rather than past mistakes, MCAs offer a lifeline to businesses that may struggle to secure funding from traditional sources.
- Flexible Repayment: Unlike fixed monthly payments associated with traditional loans, MCAs offer repayment terms based on a percentage of daily or weekly sales. This flexible structure ensures businesses can manage repayments based on their cash flow, allowing for greater financial stability and peace of mind.
- Quick Funding: Time is of the essence in business, and MCAs understand the need for swift access to capital. Compared to the lengthy approval processes of traditional loans, MCAs provide businesses with the opportunity to receive funding within days or even hours. This expedited process allows entrepreneurs to seize time-sensitive opportunities or address urgent financial needs.
- No Collateral Required: Traditional loans often require collateral to secure financing, which can be a significant obstacle for small businesses without substantial assets. In contrast, MCAs are typically unsecured, eliminating the need for collateral. This accessibility makes MCAs an attractive option for businesses that lack valuable assets to pledge as collateral.
- No Restrictions on Use of Funds: When securing traditional loans, lenders often impose restrictions on how the funds can be used. This can hinder a business’s ability to address specific needs or capitalize on emerging opportunities. With MCAs, there are generally no restrictions on how the funds are utilized, giving business owners the freedom to allocate the capital where it is most needed.
- No Impact on Credit Score: The application process for traditional loans often involves hard credit inquiries, which can negatively impact a business’s credit score. In contrast, MCAs typically require only soft credit inquiries, minimizing the impact on credit scores. This is particularly beneficial for businesses looking to preserve or improve their creditworthiness.
Unlocking business potential with MCAs
Merchant cash advances offer a viable financing solution for businesses facing credit challenges or limited financial histories. By focusing on future potential and flexibility in repayment, MCAs empower entrepreneurs to access capital quickly, fuel growth, and navigate financial hurdles. Whether seizing time-sensitive opportunities, investing in marketing initiatives, or bridging cash flow gaps, MCAs provide the necessary support to propel businesses forward.