To start, what exactly is an MCA?
A merchant cash advance (MCA for short) is a form of financing for businesses in which a lender provides funds to your business in exchange for your business's future outstanding receivables. The structure of an MCA provides companies with easy access to much-needed capital almost instantaneously that they can then use for any purpose pertaining to their business. An MCA is a great option for businesses that have a limited track record, irregular cash flows, a low business credit score, or other attributes that may give them difficulty in qualifying for traditional bank loans, federal Small Business Administration (SBA) loans, or other forms of business financing typically used by small businesses.
The Financial Utility an MCA for Small Business Borrowers
An MCA carries tremendous potential and flexibility for small businesses for a wide variety of reasons. The ease of application, near-instantaneous access to funds, and a high likelihood of being approved make an MCA into a powerful financial utility. The fact that it can be continuously rolled over so that your business can obtain additional funding if a need should arise make this financial tool highly adaptable. Discounts or incentives for early payoffs are highly common as well. An MCA can be used for virtually any purpose your business needs and it isn't tied to a specific purpose like many other types of loans or forms of financing. A merchant cash advance allows you to take advantage of opportunities that may quickly present themselves to your business and that require making a timely decision, and more importantly to commit capital.
Quick application process with high approval rates
Getting approved almost immediately is one of the significant advantages of MCA financing versus other types of business loans or financial agreements. Other forms of financing like a bank loan or SBA loan may require filling out reams of paperwork and/or opening your business's books and records to loan officers along with scheduling meetings with multiple lenders as your applications inches its way through the loan approval process only for it to end up being denied.
Compare that to a merchant cash advance that you can both apply for and be approved for in the same day. Thus, giving your business access to vital funding in a fraction of the time it would take with a bank loan or SBA financing.
MCA financing typically carries with it much higher approval rates than other forms of funding, so your business's chances of obtaining approval for an MCA are much higher than any other type of financing you may seek.
That's a double win for your business: not only are you more likely to be approved for MCA financing but once approved, you receive the funds more quickly than with any other type of financing.
It can be used for any purpose
Unlike many other forms of business financing, an MCA is not earmarked for particular purposes, nor does it come with restrictions on how you use the money. For instance, a federal Small Business Administration (SBA) loan comes with restrictions as to what it can be used for by a business that receives such a loan, in addition to very stringent guidelines necessary for a company to qualify for this type of financing in the first place. The same is true for bank loans or other forms of financing that a business may be approved for; the money received and/or borrowed must be used for whatever specific purpose that it was earmarked for by the lender or else the business borrower could face potential negative consequences, including even having to repay the financing early.
An MCA can be used wherever your business needs it most. The borrower ultimately chooses where the money is best spent.
Time is your friend - compared to other forms of financing
There is no other form of capital available as quickly or is as easy to qualify for as an MCA.
Other forms of funding may require you to fill out long applications, prepare and provide detailed reports, then meet with loan officers multiple times just to be told months down the line that the bank or lender regrets to inform you that your business's application for financing has been denied. Finding out whether you've been approved for an MCA with Velocity Capital Group takes about less than 1 hour.
Repayment terms are a set dollar amount every day or week
Although the MCA provider takes a set portion of your business's receivables on a recurring basis, the amount that you pay entirely depends upon your business's cash flows and the terms agreed upon with your funder. If your company has fallen into difficult times, your MCA provider can work with you to provide more flexible payment options during the difficult period.
This means you do not have to choose between paying one of your suppliers and repaying the financing that enables your business to keep growing.
Building Credit
Just like every person has an individual credit score, businesses also have credit scores. Business credit scores are similar to personal credit scores in that they mean to measure what kind of credit risk your business represents. These are measured by the business's past track record in repaying financing and paying its bills.
Every form of funding your business obtains and then pays back will enable your business to improve its business credit score. Therefore, securing funding through an MCA and successfully repaying it will allow your business to improve its business credit score while also obtaining funding your business may need for any number of reasons.
Deploying capital at whatever, whenever
1. Purchase additional equipment
You may be quietly considering purchasing and/or leasing a new piece of machinery or equipment that will allow you to produce additional products that will expand the products or services your business currently offers or produce them more efficiently.
Or it may simply be time to replace aging equipment, and an MCA can help you afford to do so.
2. Retool your business
Your business processes may be stuck with inefficient operational practices, resulting in less than ideal production processes, but your business could take off if you could obtain the capital necessary to upgrade your business's operations and modernize its processes.
This could mean buying or leasing new equipment, computers, or updating your business's software or servers to make your business more efficient.
Although they may initially require an outlay to modernize your business, such expenditures often pay for themselves in the amount your business saves over the long run.
2. Hire additional employees
The key to taking your business to the next level may be as simple as hiring an extra few people in order to increase your business's output. Nevertheless, you may not have the capital to hire someone immediately when it will take some time before he or she will result in an increase in your business's bottom line given the need to onboard and train a new employee, no matter what type of role that person is being hired to fill.
An MCA can be employed to help you hire additional employees in whatever capacities you need. Whether it is extra administrative help, more sales staff, or a much-needed management hire, MCA financing can help you bring on board the people you need to help your business succeed and grow.
3. Improve Operations & Fix ongoing business problems
You may be missing a person in a crucial position for your company that would help jumpstart your business's sales. Or it could be purchasing or leasing a new piece of business equipment that would help ease a bottleneck in your production pipeline or help you to modernize your production line.
Regardless of what type of operational troubles your business faces, an MCA can help you deploy capital at the business problem that your business ran into, no matter where it is in the life cycle of the business.
Your business may be staggering along on life support with equipment that is held together with poor repairs, and an MCA may be the lifeline that your business needs.
4. Jump at an opportunity that will help your business
Sometimes business opportunities present themselves, and you need to be ready to take advantage of them at a moment's notice. Whether it is a partnership with a new supplier or developing a proof of concept for a new product line. The potential of a promising new customer or target market requires a significant financial commitment in terms of upfront costs by your business. MCA financing enables you to make the necessary financial commitment to take advantage of a new opportunity for your business that could be the start of a new chapter in its development.
5. MCA renewals and repeat value
MCA funding offers the opportunity to quickly obtain new funding as your business repays its existing MCA financing. As soon as your business hits the threshold of having paid back 50% of the previous funding extended, you can then request additional funds as needed. Velocity Capital Group requires at least 50% paid-in, other funders may differ.
You and your business can keep receiving funding through renewals until you no longer require additional financing.
All in all an MCA depends on the business and its owner
Often overlooked as a steady financing option for businesses, merchant cash advances offer several advantages for companies lacking history, consistent cash flows, or track record to obtain bank loans or federal SBA loans, or any other type of small business financing. However, it all depends on the business' financials and the owner's ability to pay off the advance.
MCA applications are much simpler than the stacks of paper and hours worth of questions on an electronic bank loan application. Velocity Capital Group's Application takes about 15 minutes. Approval rates are much higher for MCA funding than any other type of business loan or financing arrangement.
MCA funding can (depending on the funder) be disbursed as soon as an application is agreed upon, putting the money in your business's hands as quickly as the next day. The lack of any specific requirements for the use of funds received through MCA financing helps you, as a business owner, use the funds where your business needs them the most. After all, you have a much better idea than a bank loan officer about what your business truly needs.
An MCA can also help your business in a myriad of different ways. It can assist you in taking advantage of new business opportunities, fixing ongoing operational issues, and enabling you to build your business's credit score simultaneously. Lastly, MCA financing is not a one-shot deal, your business can obtain new financing as it pays down the previous round of funding.
MCA financing may be just what your business needs, but it does come with its costs. If your business requires funding, finding the right funder for an MCA may be your best bet and a great opportunity to build back up.