What is a merchant cash advance and what can my business use it for?

With merchant cash advances, you spend the money however you see fit. Generally speaking, providers allow you to use the cash any way you like without attaching strings of their own. You sign up, you receive the advance, and then you use the funding as best you see fit. It’s up to you.

Merchant cash advances can be some of the most flexible funding on the market. The smartest way to use them is for growth projects with a strong, quick return: in other words, projects that raise revenues and pay back fast.

Classed as Asset Purchases

Technically speaking, merchant cash advances are not loans. Rather, they are classed as asset purchases.

The provider pays cash for the right to buy future revenue, so you get an immediate injection of capital. Then they draw an agreed percentage of your daily or weekly sales from your credit and debit card transactions until the advance and associated fees are repaid.

If you want to cut costs, keep this in mind: advance repayment is a fixed percentage of your sales. The higher your sales are, the quicker you can repay and the lower the fees will be. Use the cash to boost revenue and you’ll boost the bottom line at the same time.

Use an MCA for Almost Any Business Purpose

Typically you can use an MCA for almost any business purpose:

• – Cover cash flow needs
• – Purchase inventory
• – Begin a marketing or advertising campaign
• – Hire new staff
• – Repair existing or purchase new equipment
• – Launch a new website, or improve a current one
• – Pay for training or education for yourself or employees
• – Renovate or expand premises
• – Cover seasonal expenses
• – Purchase raw materials
• – Pay unexpected costs

When it comes to cash flow, the biggest strain, common across almost every industry, is the general shortage of ready cash or capital. Sometimes that’s caused by unexpected emergencies or catastrophes like COVID-19; sometimes, slow receivables, seasonal swings in activity, or sudden staff turnover can upset things.

Anyone running a business knows the feeling of running out of money before running out of month, and a merchant cash advance can be invaluable in those difficult moments. By allowing you the opportunity to provide yourself with an injection of ready cash and meeting an immediate need, an advance lets you carry on without interruption.

You might have an urgent need to purchase raw materials, stock, or products. You could also seek to make additional purchases to stock up for a holiday rush, or possibly in response to increased customer demand. Another common instance is the need to buy in bulk for a discount, to cut long-term costs.

You could also raise cash with inventory financing, but if you go for this, you’ll only be able to use the funds for the specific inventory you put up as collateral. Merchant cash advances need no collateral whatsoever, so you’re free to do as you wish with the money. This means you could spend some of the funds on a special sale or marketing push, to get a leg up ahead of the busy season.

In the modern digital age, success is rarely found through chance or word of mouth alone: it often takes marketing, and marketing takes investment. In a tight time frame, you can raise enough cash for a new advertising campaign that attracts high volumes of traffic. MCA cash advances are well suited to such purposes since, if successful, the investment should generate a fast rise in revenue and profits.

There are times when you need more workers. A cash advance can cover you as you bring a few more people on. When business kicks off, the extra staff you hire will boost your long-term revenues - and you can then expand if you wish. Here are just a few possible ways:

• – In a medical practice, you could hire more staff, and open more practitioner slots.
• – In a retail business, you could hire extra workers for seasonal spikes.
• – In a construction business, you could hire staff to finish on schedule and avoid late penalties.

Broken, defective, or dated equipment can slow down production, damage the quality of your products or services, or even halt things altogether. A cash advance could also pay for machinery or equipment you need to replace, or entirely new tools. These could range from heavy equipment to store fixtures or office computers, and even software.

• – A medical practice might invest in a patient management system, to help track patient histories and preferences.
• – A retail store might invest in a faster point of sale system, or CRM, to better track purchases and build loyalty.
• – A construction firm might make necessary repairs to worn heavy machinery, to avoid safety hazards.

Equipment financing can only be used for the specific equipment you put up as collateral, so it is limited by nature. With an MCA there’s no such limit, so it’s possible to use the cash to pay for any mix of needs, for example new equipment plus urgent supplies.

Just like premises need to appear attractive to succeed, every business needs a professional online presence to stay competitive. COVID-19 encouraged customers to shop and search online, even when the lockdown ended.

For a small business, setting up a polished website takes real investment. A merchant cash advance can fund that investment: paying a design firm or marketing agency to build or improve your website, and opening your business to the modern online shopper. For example:

• – a medical practice lets patients book consultations online.
• – a retail shop opens a well-designed online store that reaches local, national, and global buyers.
• – a construction firm creates a new website that collects and qualifies leads, who can then be sent quotes.

Education is key, and raising funds for staff or owner training can give your business a leg up. It can lead to new streams of revenue that pay it back.

It’s also required in some professions, such as medical and legal professions, where professionals must complete set hours of continuing professional development. Merchant cash advances can cover training for staff or yourself as owner, without straining the working budget.

Some businesses, like law firms or medical practices, rely on a polished, well-equipped image to attract clients. For any small or new business, renovations, upgrades, or new premises are a hard expense to prioritize.

Renovations also make sense when you’re expanding, such as opening up a new location, or remodeling a space that’s falling out of step with competitors. A merchant cash advance can fund these developments, keeping operations running smoothly meanwhile.

Seasonal shifts can play a big role in any business’s revenues, so a boost of inventory or extra staff could make a big difference to the year’s revenue. The busy season demands extra purchases, equipment and payroll that put your cashflow under pressure just after the slower season has run its course. Businesses like landscapers, construction firms, and retail shops are particularly vulnerable. With an MCA, you can fund preparations for the busy months ahead of time.

This approach also works in the slow season too, letting you handle quiet periods with confidence. This helps seasonal businesses enjoy a more stable flow of working capital.

A common reason to use a merchant cash advance is to cover the costs of raw materials, for example when a client puts in an order and you need to make the product before you get paid. Construction is another example, since large projects often involve high upfront costs and long delays before payment. A cash advance pays for the materials before you get paid, letting you finish the job and move on to the next. The advance allows you to provide the quality service you want, without pressuring the client to pay.

Unforeseen costs like emergency repairs or a good staff member quitting can strain even a healthy business. Conventional loans take a long time to apply for and approve, and approval is never certain, leaving you in a hole.

An MCA can be approved and funded within one business day, and go a long way to help in those unexpected times. An MCA is ideal for an otherwise healthy business who needs help with temporary obstacles.

Beats Traditional Financing

A merchant cash advance beats traditional financing in a few ways:

• – More lenient approval requirements than banks.
• – Fast approval decisions; in some cases cash is wired within one business day.
• – Less paperwork and more negotiable terms.

Merchant cash advances are only one of many kinds of alternative financing. Many options are now available to all kinds of businesses, who need money fast, who would rather not borrow from friends or family, or who can’t qualify for conventional bank or SBA loans.