Merchant Cash Advance vs. Other Business Loans
Do you need funding for your business? If so, be sure to learn about the differences in a merchant cash advance and other business loan options.
New year, new projects, new clients, new money, or not?
For this to be the case here we present some ways in which you can increase cash flow in your business.
Make your business start off on the right foot. Here we tell you what the main ways are to get cash immediately so that your company grows more than you expect.
It is the basis for all businesses to take off: funding for SMEs.
If your small business accepts credit cards, a Merchant Cash Advance can provide you with the easy working capital you need.
Without economic resources, companies could not survive, that is why it is so important to design a good financing plan for your SME.
What Is Needed to Start a Succesful Business
If you want your business to be successful you must have these elements:
- Good work environment
- Staff committed to their work
- Good administration
- Good quality materials (construction supplies)
- Processes and techniques of good quality
- License and sufficient permits
- Cash flow management
Although the first six points are very important, the 7th is vital, because it is the fuel of a company, without this, it can break.
But what are the ways to increase the cash flow in your business?
Without sparing on risks or effort, it is convenient to develop a realistic, flexible and personalized setbacks strategy.
When planning the steps to follow when you start a new business, you must elaborate a budget with the costs of each of the services or goods.
Along with this document, you will obtain an estimated return, which will inform you if the project is viable or if we must reinforce our financing plan.
For which, we have different sources of finding financing for SMEs.
Before entering into too much detail with the different ways to find financing for SMEs, we will see what is the difference between accounting and finance, and also what tricks or tips you can take note for adequate financial management of SMEs.
Difference Between Accounting and Finance
Getting financing is essential to promote the creation of a new business or to achieve its expansion, however it is necessary to choose the right product to prevent this loan from becoming a nightmare.
The correct choice of financing has to be not only noted with interest and fees, but it is also necessary to know that it depends on the cost of the new development or idea.
So, for doing all of that, you must first have an idea of the differences between Accounting and Finance.
You don’t want to create a financial disaster!
Accounting is “the system adopted to keep the account and reason in public offices and individuals.”
A more complete definition would be: “A system of control and recording of expenses and income and other economic operations carried out by a company or entity”.
Accounting, therefore, studies the different items that reflect the financial movements of a company or entity.
Overall, a company’s finances are the exchange of capital between entities, with the uncertainty and risk that these activities entail.
What Is a Merchant Cash Advance?
It is a funding formula that emerged in the United States and that has subsequently reached Europe.
It is totally amortized. This formula of funding is 10% of the total funding for small businesses in the USA
The idea of the Merchant Cash Advance was born as a resource for those businesses that did not have access to conventional bank loans, especially small businesses.
The Merchant Cash Advance is a simple and flexible alternative to traditional banking reinforcement roads for businesses and small businesses whose clients make use regularly of debit and credit cards.
The MCA is not a loan in the strict sense of the word, but an advance, which is returned with a portion of the sales by credit or debit card made by the merchant that received the advance.
The shops do not pay a monthly fee or have a rigid term to amortize it, but the receiving company returns between 5% and 15% of each of the sales that carry out to the card to its clients, until the total to reimburse it agreed with the financial company of MCA is completely amortized.
The refund is made as consumers make sales by card and directly from the PST (Point of Sale Terminal).
The percentage of return of each sale is decided between the ACC company that provides it and the establishment that receives it to obtain a quota that favors both.
What are the Characteristics of the Merchant Cash Advance?
- The speed of the concession, which is usually less than 48 hours.
- The amount, which can be small amounts intended, for example, to small reforms or purchases of stocks.
- The flexibility, to be returned as the business generates revenue: if the sales are lower, the receiver of the advance will have the possibility of returning less; and if the sales increase, it will allow the return in a shorter time.
- Gets up to 100% of its quarterly billing on cards to make reforms in your business, to be supplied with goods or start a virtual store.
What Can You Expect From Several Lenders of Merchant Cash Advances?
As the owner of a small business that requests a merchant cash advance through a lender, you can be assured of these few things:
Lots of Paperwork Is NOT Their Business.
Banks require audited financial information, including all personal information that you may hold.
Several lenders only require a credit card statements, your recent tax statements, and an application that can be completed easily by yourself.
Complex Payment Structures are NOT Their Business.
Several lenders provide small business owners with cash advance offers for merchants that are simple, easy to understand and have varying payment plans to meet your needs.
Their experienced financial experts will apply a wealth of business knowledge to provide you with a faster and more accurate commercial cash advance service.
Benefits of a Merchant Cash Advance
- It only pays when it generates sales
- There is no term or fixed term to pay
- You can just send the payment when your business makes sales
- With some companies, you could get up to $ 250,000 dollars within four days
Uses for Your Money
- Expand your business
- Buy inventory
- Remove your business
- Buy new equipment
- Invest in advertising and ads for your business
How Much Should I Pay?
Through an automatic process, your business sells to the MCA companies a portion of your future monthly sales at a discount.
You pay them by giving them a percentage of each sale you make. This percentage is fixed and does not change at any time.
The best part of this method is that if you do not have sales you do not pay for it.
You will only pay when you have sales in your business.
What Association Controls The Merchant Cash Advance?
The companies dedicated to the MCA in the United States and Canada are represented by the North American Association of Cash Advance to Trades.
This association offers support and help to influence and shape the MCA industry through leadership, education, and transparency of information.
The companies in charge of managing the association are:
- GRP Funding
- Amermerchant Merchant Cash & Capital
- Merchant Capital Access
The Federal Reserve of the United States affirms that the MCA represents 7% of the total financing for small and medium enterprises.
In addition, it has surpassed other models such as traditional factoring and approaching others such as leasing.
How to Make an Effective Administration of SMEs?
The administration of SMEs is not easy, especially if you are an entrepreneur who is beginning to design a management model that suits your particular needs.
Here are some tips to refine your management and control of finances.
Find the balance between debt and financing that fits the needs of your business. It is key to be able to face the setbacks. In this way, you will not have unpleasant surprises.
Think beforehand about several scenarios. Related to the first point, it is essential that you have several contingency plans according to the scenario you propose.
Here, you can help many management applications with which you can predict different scenarios, depending on the operation of your business project. For example, you could have a Test Mode that allows you to see how the changes would affect, should one or another setback occur.
Without touching the current planning, you can save different scenarios, to implement what is necessary.
Plan and estimate costs in a flexible way. Very linked also with the above. Do not make very static plans, because almost certainly they will vary throughout the project.
Use tools that allow you to make quick changes, taking into account everything you have planned so far. You could find a way to facilitate agile management to face unexpected setbacks.
Start Now to Plan
All this helps us to avoid solvency or liquidating problems. Forecast possible scenarios and have a good contingency plan, is the key to weather risks that really endanger the business.
Share the weight of your business among the maximum number of customers you can. Depending on a few customers, it is a danger for what to be prepared for, or directly to avoid.
Control the default rate of your own clients and keep in mind that there will be those who do not pay immediately.
If you can not avoid these short-term lags, you have the option to request credit lines and policies or discount lines for promissory notes and checks, in the short term.
This is advisable, only if you go through these situations in a very punctual way, since it goes much better, it is more stable and economic, apply for a long-term loan.
Support for SMEs and Entrepreneurs: Types of Financing Sources
There are many financing options for companies.
Support for SMEs and entrepreneurs, in a country of medium and small companies, is latent.
However, sometimes it is hard to find what are the sources that can help us launch our business idea, to make accounting for SMEs a little easier.
- The FFF, or also known as ‘Family, Fools, and Friends’: Invests the entrepreneur just when starting with the business, supported by family and friends.
- ICO Business and Entrepreneurs Line: This financing fund for SMEs is aimed at solving the needs of medium and small companies, as well as for entrepreneurs.
- Business Angels: They are among the FFF and venture capital. These are private investors who provide capital to businesses in exchange for shares.
- Capital Risk: It is granted when the company is more consolidated because it is a fund that invests greater amounts of money. It allows for solutions such as expanding the business, sharing risk and returns. The investor seeks a close and medium-term partnership with current shareholders.
- Banking financing: in which companies can go for a loan over working capital or have flow in the daily business operation. In addition to commercial banking, there are commercial banks that can help you, as well as companies dedicated to financial factoring.
Shop Around Before You Commit
The important thing is to compare the merchant cash advance products and bet on the one that best suits your personal needs since the credit must be a custom-made suit.
The best thing to do is to visit all your local banks to see how they can best meet your business needs. it is also worth looking online, as many of these bigger banks have sub-companies that run completely online and normally don’t have as many account charges as standard banks.
Apply for a loan with us today, and get your business started on the right foot.