Merchant Cash Advance(MCA) For Retail Businesses
To thrive in today’s constantly evolving and highly competitive retail industry, a retail store owner needs substantial working capital and a constant cash flow. Most advanced equipment, a good stock of inventory, highly skilled sales executives and a suitable premise are the four pillars of a prosperous retail business. Rapid digitalization has given birth to the concept of the online retail business model, which is being adopted by most offline retailers, who once used to sell only from physical stores. Adopting this model often turns out to be beneficial for the retailers as they can cut down the expenses of hiring, training in-store sales executives and showroom rent or maintenance charges, in the case of owned property. All they have to pay for are the warehouse, the inventories, website maintenance, digital marketing and of course delivery. However, like offline retailers, online retailers also go through dips in cash flow, which often makes it difficult to pay essential business operation bills. Sometimes, sudden breakdown of equipment, need for an immediate store renovation or inventory acquisition etc., retailers, both online and offline, look for financial support. This is when financers step into the scenario. Business financers can be banks as well as non-bank lenders. But, when it comes to small to medium retailers, bank loans often do not turn out to be a quick and convenient business financing option. For a retailer looking for fast funding, the retail store cash advance is a viable financing option.
Unlike a traditional business loan, a retail Merchant Cash Advance(MCA) is the sale of a specific percentage of the retail business’s future revenues, in return for a lump sum amount. Technically, a cash advance is a way of getting funds by selling a portion of the future revenues at a discount. Generally, the borrower doesn’t get a full advance amount for the receivables being sold. Instead, he/she receives around 70% to 90% of the receivables’ value. To apply for a retail merchant cash advance or retail cash advance, the borrower needs to submit a basic credit application, besides recent bank statements and merchant credit card processing statements, for analysis. In the case of retail cash advances, documents are reviewed quite fast, mostly within a couple of hours. Once the review is done, the financing company shares its decision on going ahead with the application. If the application is approved by the lending company, the applicant receives an offer that comprises the funding amount, rates, terms and type of repayment. Once the borrower accepts the offer, he/she receives a contract along with a list of stipulations, required before funding, from the financer. After the contract is signed by both the borrower and the retail cash advance provider, funds are directly transferred to the borrower’s business account. Usually, the entire process doesn’t take more than 3-4 days, but in some cases, where the documents are provided on time, fund disbursement takes place within 24 hours of the application. Hence, the retail cash advance is often considered a same-day funding option.
Reasons To Opt For Retail Cash Advance:
- A retailer needs to focus on multiple aspects of running a business, like marketing, advertising, inventory purchase for the storefront as well as the online store, etc. Besides, a retailer is often required to pay for emergency expenses like repairs, equipment replacement, store renovation or inventory shifting to a bigger warehouse, to meet the increasing demand. Unlike banks, retail cash advance providers do not restrict the usage of the funds.
- A retail cash advance application generally gets approved within 3-72 hours, depending on how quick the documents are submitted, the amount of financing being sought and the financing company’s underwriting speed.
- Unlike conventional lenders, who usually ask for a huge list of documents like tax returns of the last few years, income statements, balance sheets accounts receivables and payable ageing schedules etc., MCA providers require just an application, bank and merchant statements.
- Retailers with low credit scores are also eligible for retail cash advances, as MCA providers are more interested in the applicants’ monthly, weekly and daily income, rather than their credit scores. This is because the funds are provided in return for a certain percentage of the borrowers’ future daily credit card/debit card sales and the payable amount keeps on getting deducted directly from the borrower’s bank account or merchant account, till the entire amount is repaid.
Types of Retail Cash Advances:
- ACH Retail Cash Advance
It relies on the repayment that comes directly from the borrower’s business bank account. In the case of an ACH, the lender recovers the advance by deducting a set amount each business day, till the entire amount is repaid.
- Retail MCA Split
MCA split is quite similar to the ACH cash advance. However, the daily repayment amount and the payment process are different. In the case of a retail MCA split, the funder splits each day’s credit card transactions to make the repayment process easier.