Running a business is a stimulating venture indeed. But, it often turns out to be heart-wrenching, especially when the business is going through a financial crunch. There are multiple situations, like economic recession, need for expansion, seasonal fluctuations, etc., when business owners require additional funding, to thrive in the industry. However, not all businesses qualify for traditional bank loans, because of their size, availability of business assets and market experience. This is when business owners can turn to alternative financing options like Merchant Cash Advances(MCA), also known as business cash advance, which offers funds within a short timeframe with comparatively linear credit requirements and a less stringent approval process. In the case of MCAs, the borrowers receive the required amount as a lump sum, which needs to be repaid with a percentage of the business’s future credit card sales. Therefore, only those who accept credit card payments can apply for MCA. Also, as this type of financing is unsecured, the borrower doesn’t need to put up collateral. MCAs are ideal for businesses that witness high credit card sales or seasonal revenue fluctuations.

Seasonal businesses like snow removal services, swimwear shops, ski equipment retailers, shops selling party decorating accessories etc., often repurpose their operations during the off-seasons, to avoid financial failure while having money problems. Such businesses can immensely benefit from MCAs before the busy season arrives. Business cash advance enables the entrepreneurs to maximize the revenue during the peak seasons. The collected revenue eventually helps them to survive during the slower seasons. Also, those seasonal businesses which are unable to repurpose their primary trade can opt for MCAs to make sure, they don’t have to completely shut down during the off-season. These businesses make most of their sales around the festive season. Therefore, they often need to purchase extra inventory, hire additional employees etc., to meet the high seasonal demand. This is when MCAs can be of great help.

      MCA application process:

      • Documents like the profit-loss statements for the last 6 to 12 months needs to be submitted by the borrower. Also, the purpose of the business needs to be clarified. Then, MCA can be applied online.
      • The submitted document and collected details get inspected by a team of experts.
      • Once the verification is done and the finance management team approves the application, the fund gets credited to the borrower’s business account within 24-48 hours.

      Fees & charges:

      Though MCA is an interest-free financing option, MCA lenders charge a fixed one-time fee. The total lending amount is multiplied by a factor rate, which is often between 1.1 to 1.7, to get the payable amount. However, the holdback percentage, which is mostly between 10 to 20% of the borrower’s credit card sales, decides the daily or weekly repayment amounts. With no fixed term or repayment date, the repayment amount entirely depends on the regular cash flow of the business. For example, the payment amount will be more on days the company experiences exorbitant sales and less on the slow business days. The lenders collect the daily amount directly from the credit and debit card sales of the borrowers. However, the repayment term is often 18 months.

      Eligibility:

      Business owners with low credit and no valuable assets are also eligible for MCAs. To get an MCA application approved, one needs to show strong evidence of substantial and steady annual income. For that, the borrower needs to submit the profit-loss and income statements for 6 months to 1 year.

      The 3 Primary Reasons, MCAs Are Beneficial For Seasonal Businesses:

      • As seasonal businesses fully operate only for a portion of the year, their financials do not match with what a bank requires to approve a business loan application. Besides, seasonal businesses often require quick funds, as they need to quickly get equipped to meet the rising demand before the season fades away and the demand slows down. The comparatively low credit score requirement, lenient repayment structure, fast approval process and fund disbursement make MCA an ideal funding option for seasonal business owners.
      • The fixed monthly payment structure often turns out to be strenuous for seasonal businesses. Even if one month witnesses low sales and the borrower is unable to pay the pre-decided monthly payable amount, the default will end up affecting the business credit. In the case of MCAs, borrowers get the flexibility of repaying the advance by allowing the lenders to deduct a small percentage from the daily credit card sales, directly from their trade accounts, till the entire amount is recovered. Besides, there are no prepayment penalties. Hence, MCAs, usually, turn out to be quite beneficial for seasonal businesses.
      • Technically, MCAs are an advance of working capital, which can be utilised in multiple business operations. MCAs can be used to stock-up inventories, hire temporary or contractual workers/employees, run promotional campaigns and many more. MCA lenders never restricts the fund usage. Technically, MCA is a capital advance, and hence, no debt gets recorded on the books. As a result, the seasonal business owners get a chance to preserve their credit ratings, which often helps them to start preparing for the next year’s rush.