A merchant cash advance is an excellent alternative funding source to add to your current mix of loans, lines of credits, credit cards and personal financing. Businesses like them because of the simplicity in securing capital. Capital advance providers typically don’t ask for a business plan, and they usually do not require collateral. Your credit score does not have to be perfect either. But there is a cost to this convenience and the cost may be higher than traditional funding sources. Recouping the cost may determine whether a merchant advance makes sense as a solution.
So what are the best business scenarios for merchant cash advance funding? Here are a few solid examples:
Funding construction or renovation.
Your business is hot. You have more customers than you can hold in your restaurant or store. You’re thinking of adding a patio to your restaurant, or maybe buying additional parking space for customers. A merchant advance could be the solution for you. The reason businesses favor a merchant advance for these situations is because they want to take advantage of a growth trend quickly. The investment provides a way to increase sales and see a return on the merchant advance investment. When you have to wait weeks or months for funding from a traditional source, you are also losing weeks or months of potential revenue. The wait can be painful if you’re trying to capitalize on a seasonal trend. Even if a merchant cash advance isn’t your primary source of construction funding, it can help out if construction goes longer than expected and additional costs crop up that could delay the project if not paid.
Bulk inventory purchases.
Your vendor is offering an exceptional deal on inventory that you sell all the time. Or maybe it’s something new that you know you can sell, but right now you don’t have the cash to invest. A merchant cash advance could give you quick access to funds to take advantage of the limited time promotion being offered by your vendor. A merchant advance is a powerful solution when you’re in an industry where it’s hard to get a traditional collateral-backed loan. It also gives you the ability to buy larger quantities in order to take advantage of bulk discount rates. You still have to do some math. Make sure the incremental profits and sales from the inventory will cover the additional costs of the advance and still net you more profits.
Business has been impressive but service is suffering. You’re losing customers because you’re understaffed. A merchant advance can provide the injection of cash needed to staff up to levels to support sales growth. It can also provide you with the funding needed to offer a better compensation plan to attract and keep talent. A payroll investment may not just be to hire more people, but also to ensure that staff gets adequate training. Maybe you want everyone to go through a customer service workflow, or food safety re-training, or a certain certification. A merchant advance can provide a quick way to get staff up to speed, and help to improve customer service levels and give you a competitive advantage in the market.
While having an exceptional product and word-of-mouth is a terrific way to generate business, maybe you would like to do some extra advertising to attract even more new customers. You’re having a special. You’ve changed your inventory mix. There’s a new condo development that went up a few weeks ago, and you’d like to make sure the new tenants know about your business. You want to place a few ads in the local paper, update your business signage or re-do your outdated website to help polish your image. A merchant advance can help provide the funds needed to your business to help attract and keep more customers. You need to make the investment before you see the return.
The common thread between all of these projects is that the investment provides a return – an increase in sales, which will cover the funding costs without taking from your profits.