For many small and medium businesses, a merchant cash advance (MCA) is a quick way to access working capital when traditional sources of funding are not available. Because an MCA is short-term financing (often payable in 6-9 months), it is typically the best option for short-term business needs. The main reasons businesses rely on cash advances include:
- Business advertising
- Filling gaps in cash flow
- Covering unforeseen business expenses
Generally, businesses that typically need fast access to working capital include:
- Retail stores
- Beauty salons
- Auto repair shops
Let’s take a look at how these small businesses can benefit from MCAs.
Obviously, working capital is crucial for a successful retail store, especially in the contemporary retail landscape. Generally, a cash advance allows a retail owner to fill short term business needs such as stocking seasonal merchandise, reorganizing the store to enhance sales, and setting up new stores to grow the business.
Restaurant owners customarily face two challenges: competition and thin margins. An MCA can help to finance needs such as purchasing new kitchen equipment, redesigning the dining room, accessing volume discounts from vendors, and establishing franchises.
Today’s beauty salons are not merely about hairstyling, but providing customers with a wide range of procedures. As such, a beauty salon owner may need a cash advance to purchase state-of-the-art equipment and new materials or modernize the space.
Auto Repair Shops
Given cars, SUVs, and other motor vehicles are loaded with technology (e.g. adaptive cruise control, automatic emergency braking, lane keep assist, GPS navigation, etc.) auto repair shop owners must stay up-to-date. A merchant cash advance can help an auto shop purchase new diagnostic equipment, restock parts and supplies, and cover unforeseen business expenses.
As any flower shop owner knows, the business is cyclical and depends on seasonal and holiday activity. Small florists also face challenges from national retailers. A cash advance can help a florist cover expenses and survive when business is slow.
What are the risks of a merchant cash advance?
Although a merchant cash advance can allow a small business owner to tap working capital, MCAs typically contain onerous payment terms, complicated factor rates that translate to astronomical APRs, confessions of judgment, and personal guarantees. In the event of default, the MCA provider can quickly begin seizing the owner’s business and personal assets and push both the business and the owner into bankruptcy.
It is important to remember that a merchant cash advance involves the purchase of future receivables. Because it is considered a sales transaction rather than a loan, business owners are not protected by consumer lending laws.
If your business is struggling to meet the payment terms of a merchant cash advance, contact the experienced relief specialists at ReconcileMyMCA.com. Our team can help explore all your options, including reconciling your cash advance with the MCA provider. Above all, we will work to preserve the viability of your business and avoid the devastating consequences of a default.