Merchant cash advances are a great way to provide financing to a business without going through a lot of the hassles associated with a bank loan. If you’re the owner of a small business, it’s important to learn everything you can about this valuable tool to help you gain access to capital. iKhan Capital can help.

What is a merchant cash advance lender?

Merchant cash advance lenders, or MCAs, are companies that provide capital to small and medium businesses. During a normal business cycle, it’s common for both new and established businesses to not have access to capital. Sometimes this is the result of nothing more than invoices from vendors coming due before a business owner has the ability to collect on the work he or she has performed for clients. Other times, a business owner may need funds to buy equipment in order to prepare to take on larger jobs.

An MCA works to make the cash that a business needs available to that business as quickly as possible. While some banks focus on long-term financing such as a mortgage, MCA lenders are typically concerned with making small amounts of capital available with relatively little paperwork. This makes it possible for business owners to access the funds they need in time to pay bills or have the people and equipment they need ready to start bidding for bigger jobs.

MCAs are mostly focused on whether or not a business can pay them back in the short-term. This means that they are much more likely to ask for information such as income rather than focus on factors such as the length of time a business has been incorporated or the amount of assets a business owns. For this reason, merchant cash advances are often a good capital solution for new businesses, or businesses that tend to run with relatively low amounts of cash available.

What is the difference between a loan and a merchant cash advance?

For many loans that come from “traditional” banks, a bank requires a lot of paperwork. Often, banks request that businesses provide months of financial statements, lists of assets that are owned, and even payroll and tax records. Finally, banks will also require that a business put up a significant amount of collateral in order to secure the loan. Often, that means putting the office or valuable equipment that is essential to the business at risk.

A merchant cash advance has virtually none of these issues. MCAs are designed to be relatively hassle-free; most business owners can complete the paperwork necessary in just a few minutes. There are relatively few checks on income or assets. In fact, many types of MCAs won’t ask these questions at all. An MCA will also rarely ask for collateral.

For a business owner, taking out a merchant cash advance when they need access to capital is a good way to protect the assets of their business. In the event that a project is delayed or goes over-budget, the business owner will still be able to access and use the tools he or she needs to complete the project.

Merchant cash advances are a valuable tool for businesses that just need access to cash from time to time. While a traditional loan may take decades to pay back and require constant scrutiny from bankers, an MCA allows business owners to pay it back within a matter of weeks or months. In fact, some MCAs are designed to only last a few days. That means an MCA can be cleared off the books within a short period of time, allowing a business to expand or apply for other types of credit without any issues.

Are merchant cash advances a good idea?

Like any business decision, it’s important for a business owner to evaluate what an MCA can offer and determine if it is right for his or her business. Every business is different, and what is right for one company might not be the best decision for another.

In general, however, there are a few factors that can help to determine if an MCA is the right business decision for your company. Ask yourself these questions:

How quickly does the business need funds? If the answer is less than thirty days, then a traditional loan will probably take too long to be useful. MCAs can often be approved within a day.

Can my business put any assets at risk? Traditional loans will require collateral, which means that essential items such as heavy equipment, vehicles, or office space could be at risk if a single payment is missed. With an MCA, these assets are not put up as collateral. That means that your business could continue to use these items even if there were issues with paying back the advance.

Are there any other ways to get the capital my business needs? Bank loans not only take a long time to qualify for, it’s also likely that they won’t make funds available when you need them the most. If options such as selling heavy equipment or laying off staff are detrimental to the business, an MCA might be a much smarter option.

Merchant cash advances are a valuable tool that has been used by business owners for decades. They’re a great way to access cash quickly, allowing business owners to pay outstanding bills, keep up with payroll, and expand their business. If you think this financial tool is right for your business, contact us today!