Businesses need steady working capital to be successful. But with many small businesses, cash flow can run thin for many reasons. This possibility is why short-term business funding is essential to small business finances. However, many small businesses lack the maturity or the creditworthiness to secure short-term funding approval from traditional banks. As a result, small companies operating in the early stage have a more challenging time securing traditional short-term funding than older, more established small businesses. The irony is that younger small companies are likelier to have cash flow issues.
Fortunately, there are several alternative funding options available for small businesses. One of the four most popular alternative small business funding options is a merchant cash advance (MCA). Unlike bank loans, MCAs allow you to sell a percentage of future credit card sales in return for a lump sum payment to your business account.
MCAs can be a valuable small business funding source, provided you understand their risks and limitations. So, to help you determine whether MCA is right for your business, we’re taking the rest of this space to discuss the pros and cons of MCA.
Pros of Merchant Cash Advance for Small Companies
An MCA can be a valuable funding source for small companies needing to boost cash flow from time to time. Here are five qualities of MCAs that could benefit your business.
Quick Source of Funding
Since the MCA funding process is usually short, you can have the funds you need within a few days. For example, Zinch has an easy online application process, quick approvals, and swift funding. Once approved, the money can appear in your business bank account within 24 to 48 hours.
Flexible Payments
One of the most significant advantages MCA provides for small businesses is it doesn’t have a fixed monthly installment plan. Since the MCA payments are a percentage of your monthly credit card sales, the flexible payment amount shrinks during months when credit card sales are slow.
The Total Repayment Amount Doesn’t Increase
Unlike traditional loans, your total repayment amount doesn’t increase over time because of variable interest, penalties, or interest capitalization. Instead, you only repay the loan, the funding charges, and the factor rate.
MCAs Don’t Require Collateral
Many small business financing options require collateral from you before they approve funding. If you can’t repay the total amount owed, they sell your collateral to offset their cost. On the other hand, MCAs allow you to get the funding you need without the risk of losing a valuable asset during a downturn in business.
You Can Qualify With Less-Than-Perfect Credit
Most traditional financing companies require a near-perfect credit score to grant funding approval. As a result, many small business owners struggle to secure funding from traditional financing options because of credit history or lack of credit history. On the other hand, MCA companies like Zinch approve financing based on credit card sales instead of your personal credit history.
You are very likely to get approved by Zinch if you’ve been in business for at least six months and earn a minimum of $10,000 in credit card sales. You can check whether you can qualify by filling out our online pre-qualification form.
Cons of Merchant Cash Advance for Small Companies
A merchant cash advance may not be the ideal funding option for some small businesses. Even if it is, there are disadvantages you should consider before making a final decision.
Cash Dominant Businesses May Have Trouble Qualifying
Many MCA companies draw funds for repayment from credit card receipts. So, if most of your sales transactions are in cash, you may have difficulty qualifying for the advance.
MCAs are Pricier than Other Business Financing Options
When it comes to funding, there are tradeoffs to consider. MCA benefits such as flexible payments, ease of qualifying, speedy funding, and a stable repayment balance may come with a higher overall cost than other finance options.
MCAs are a Temporary Solution to Business Cash Flow Issues
The structure of MCAs is best for temporary cash shortages. In the first few years of running a small business, it’s common to encounter financial shortfalls now and then. However, every business should be moving toward self-sufficiency. And merchant cash advances can serve as a temporary stopgap until your business reaches that point.
Is an MCA the Right Choice for You?
A merchant cash advance offers significant advantages for small businesses in the early stages or with less-than-perfect credit. It is a quick and easy way of securing the funding you need. So, considering these perks discussed in this merchant cash advance pros and cons evaluation, it should be clear why MCAs are among the most sought-after business funding options.
There are plenty of good MCA companies available. But Zinch is one of the industry’s most creditable and convenient financial solutions. Contact us at (714) 500-6622 to learn more about your options. You could qualify for up to $250,000 in just 24 hours.
