merchant cash advance for small business

Is a Merchant Cash Advance Right for My Small Business?

If your small to mid-sized business needs working capital but lacks access to traditional sources of financing (e.g. business loan), a merchant cash advance (MCA) may be an option. This alternative funding product is not a loan, however, generally unregulated, and typically comes with strict repayment terms that could easily result in a default

Ultimately, failing to pay back an MCA could lead to the collapse of a company or liquidation bankruptcy. If your business needs assistance with a merchant cash advance, talk to an experienced debt relief specialist. In the meantime, let’s take a look at the types of small businesses that typically benefit from merchant cash advances

Reasons to Consider a Merchant Cash Advance

Many small businesses, in need of working capital, primarily turn to alternative fundings such as merchant cash advances for:

  • Marketing and advertising
  • Covering cash flow (receivables) shortages
  • Paying unforeseen business expenses

Moreover, all types of businesses tap the MCA market, including:

  • Retail stores require working capital in the contemporary landscape as shoppers move online. An MCA allows a retailer to manage inventory, reorganize the floorplan to boost sales, and set up new stores to grow the business. 
  • Restaurants face stiff competition and razor-thin margins, which makes working capital essential for purchasing new equipment and establishing franchises.
  • Beauty salons offer more than hairstyles today, often include skincare,  massage, and spa services, which make merchant cash advances necessary for purchasing new materials and equipment and modernizing the space.
  • Auto repair shops must stay current in order to service contemporary tech-loaded vehicles by purchasing new diagnostic equipment and restocking parts and supplies with funding through an MCA. 
  • Florists need to deal with the cyclical nature of the business (e.g. seasonal/holidays) as well as stiff competition from national retailers which makes an MCA crucial or covering expenses when business is slow.

What happens if my business cannot repay an MCA?

A merchant cash advance is typically sought by startups and small businesses that cannot tap traditional loans, whether because of poor credit or limited time in business. An MCA is not a loan, however, but rather the purchase of future receivables in exchange for a lumpsum payment. Because it is a sales transaction, however, an MCA does not fall under traditional lending laws.

This gives funders an unfair advantage because they typically rely on onerous terms such as a Confession of Judgment and a personal guarantee which can jeopardize both the business and personal assets. If you default on an MCA agreement, the funder can quickly move to levy bank accounts and personal property. 

At the same time, a properly structured agreement will include a reconciliation clause that requires the MCA provider to restructure the payment plan if your sales do not meet the projected target, as long as you meet certain conditions. First, you must notify the funder of the receivables shortfall and request the advance to be reconciled. Further, you must provide evidence that your business will return to profitability. 

This is where comes in. We regularly assist businesses with reconciling their cash advances. If your business is struggling to meet the terms of an MCA agreement, contact our office today by completing the convenient intake form.