Sometimes referred to as merchant loans, MCAs or merchant cash advances, are a financing option available to businesses of all kinds, on a short-term basis.
How does a merchant loan work?
Lenders of merchant loans release a lump cash sum to a business, backed by sales that will be carried out by the business in the future. Regular payments are made by the business to repay the loan, and these are calculated as a percentage of their credit or debit card sales.
What types of business can benefit from a merchant cash advance?
Using an online MCA Calculator can help a business owner determine the feasibility of such a loan, and while they can be considered by a variety of different businesses as a credible source of fast capital, they are most likely to be used by businesses that do the following:
- Accept credit or debit card payments
- Don’t have a solid credit history
- Need cash, fast
- Are increasing their sales
Below are just a few of the types of businesses most commonly accessing merchant cash advances today:
Restaurants
Whether a food truck, pizza delivery or regular restaurant, merchant cash advances tend to be beneficial for these businesses thanks to the fact that many of their annual revenues are derived from credit card sales. Additionally, seasonal cash flow fluctuations are a common occurrence, making a merchant cash advance a sound option to help them cover their operational costs during these periods.
Retail stores
With much of their revenue also gained via credit card transactions, owners of retail businesses are also prone to sales volume fluctuations according to the time of year, inflation and holidays etc. As such, merchant cash advances can give them much needed supplementary capital when they need it the most.
Travel agencies
Companies and travel agents that plan vacations are able to take advantage of merchant cash advances during periods when business may be slow. Heavily dependent on a variety of factors, from weather and natural disasters to the threat of a recession, MCAs enable business’s within such an industry to continue networking and advertising, even when little money is coming in.
Hotels
In much the same way as travel agencies may struggle at certain times of the year due to a variety of factors, as can hotels and other forms of guesthouses. However, operational costs for hotels remain high even when business is slow, unlike with travel agencies, leaving them struggling to pay their bills without help from an MCA.
Seasonal home services
There are several types of business owned by entrepreneurs that depend heavily on seasonal work, such as pool cleaning and snow removal, among others. When the customers aren’t calling, they aren’t paying either, and such businesses may desperately need to supplement their income with something like an MCA. While business loans for women may help female entrepreneurs under such circumstances, with the strict rules surrounding the application process, they may well be turned down, or not offered sufficient funds.
E-commerce
Having grown in popularity exponentially in recent years, e-commerce businesses have been taken up by a growing number of entrepreneurs, all wanting to sell their own unique products online, or make money through affiliated marketing strategies. With the help of a merchant cash advance, inventory or supplies can be bought, or a social media campaign can be launched, for example.
Salons and spa’s
The majority of customers visiting a salon or spa pay by credit or debit card, making the arranging of a prepayment plan for an MCA, straightforward. What owners of salons and spa’s use the cash advance for is up to them, but it may include such things as renovations, startup costs or operational expenses.
If you’d like to find out whether your business could benefit from a merchant cash advance, reach out to an online loan company where you should find all the help you need. Failing that, you can seek impartial advice from an independent financial advisor.
