Better Alternatives to Merchant Cash Advances (MCAs)

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merchant cash advances alternatives

Cash flow is the lifeblood of a business. If you can keep cash flow healthy, your business is in a great position. However, there may come a time when, for whatever reason, cash flow dries up – and it isn't necessarily caused by mismanagement. From a client paying an invoice late to a sudden drop in demand for your products/service due to seasonal changes, cash flow problems can be devastating to a business. 

Many owners face business cash flow problems at some point in time, and many are able to weather the storm. However, if you have business debts that require regular repayment or if an unexpected expense occurs, poor cash flow will be amplified and can result in more significant problems.

When a cash injection is needed to pay a business debt or to purchase a necessary item, owners often turn to business loans. In the decade since the financial crisis, banks and other conventional lenders have withdrawn from the small and medium-sized business market.  During that time, an innovative type of business financing has filled the void: merchant cash advances. 

Merchant cash advances (or MCAs for short) offer companies a way to access funds incredibly quickly—we’re talking days, not weeks or months—even if they have bad credit. However, the speed and convenience of this type of financing comes with a hefty price tag.

What is a merchant cash advance?

A merchant cash advance a type of business financing that leverages the future sales or other receipts of the business. 

Typically, the advance is repaid by a percentage of the gross daily receipts. It is sometimes set up to be repaid by fixed amounts from the borrower’s business account, instead of a percentage. 

As a result, merchant cash advances can be obtained by almost any business that has a history of steady receipts. This means even companies with bad credit who can’t get a loan from their bank can probably get a merchant cash advance. 

As with most types of small business financing, personal guarantees are usually required, also.

Problems with merchant cash advance lenders

Business owners generally turn to merchant cash advance lenders when they need to cover short-notice expenses. For example, you are a restaurant owner and suddenly your walk-in freezer stops working. If you don’t have a business emergency fund and can’t qualify for a business bank loan (or can’t want for the bank to process the loan), you might turn to a merchant cash advance to pay for a new freezer so you can keep the restaurant open. 

In return for the merchant cash advance, you would have to pay the merchant cash advance provider somewhere in the range of 10%-50% of the restaurant’s daily receipts for a predetermined period of time. Obviously, this will put a significant strain on your cash flow.  

Merchant cash advances are also used by business owners who are falling behind on operating expenses to cover debts when business is slow. While a one-off payment may cover the operating expense debt immediately, the business owner runs the risk of having to pay  off a long-term merchant cash advance . . . and this is where real damage can be done to your business. 

With the real cost of merchant cash advances so high, business owners often have little choice but to refinance the merchant cash advance and roll over their existing debt into a new merchant cash advance. When this happens, business owners can quickly fall into a spiral of debt that is extremely difficult, if not impossible, to escape.

Five merchant cash advance alternatives

Luckily, a merchant cash advance isn’t the only option open to businesses in need of funding. There are several alternatives to merchant cash advances that business owners should consider first.

  1. Equipment leasing

    Equipment leasing allows a business to purchase the equipment it needs without having to take out a loan. In effect, you are renting the item for a period of time. 

    Since equipment leasing is not permanent, you will have to either return the equipment or pay for it outright when the lease term ends. However, if your business needs new equipment immediately, this is the way to go – as long as you can afford the monthly payments.

  2. SBA loans

    Small Business Administration loans are an excellent way to finance your business when you need cash. Because SBA loans are guaranteed by a U.S. federal agency, lenders are able to offer much more competitive and flexible terms and rates. Low APRs (annual percentage rates) and longer repayment terms are significant benefits of SBA loans. 

    However, there is a downside to SBA loans. 

    Getting an SBA loan can be tricky. The loan application checklist is long, and new businesses may struggle to get approved. SBA loans aren’t instant, either; it can take weeks for your loan to get approved and financed, which isn’t ideal if you need to pay off a business debt or buy new equipment immediately.

  3. Asset-based loans

    A lot of businesses facing cash flow problems are sitting on substantial assets. If this is you, an asset-based loan may be the answer. 

    When you take out an asset-based loan, you use your business assets as collateral. This can help you achieve lower rates and more favorable repayment terms, but it means putting your business equipment and premises on the line. If you don’t repay, you could lose assets that you need to run your business -- or even your business itself! 

    As with SBA loans, it can take a while for an asset-based loan to come through, which makes it impractical for organizations who need immediate financing.

  4. Renegotiate credit terms with suppliers

    Instead of taking out a cash advance, another option is to free up cash flow by renegotiating your credit terms with suppliers. If you can extend your payment schedules by a month or two, it can have the same positive impact as getting a short-term loan. The money that was needed to pay your vendor can now go towards the new piece of equipment that you need or paying off your other expenses. 

    Most suppliers will be open to extending a business’ credit terms, and you should ask for the maximum credit period they can provide. If they are unwilling to negotiate, it may be time to look for new suppliers.

  5. Restructure or consolidate your existing business debt

    If you’re turning to a merchant cash advance in order to pay off an existing business debt, you may first want to consider restructuring or consolidating the debt. 

    Many businesses face a juggling act of trying to manage several different debts at once. Debt consolidation is a perfectly reasonable business strategy and can be a great way to combine all of your existing business debts into a single, smaller and more manageable payment. 

    Alternatively, you may wish to restructure or settle your debt outright. This could significantly reduce the amount you owe or your payments, and have the same impact on your cash flow as the merchant cash advance you were considering. After all, you don’t need a merchant cash advance if your money is freed up by lowered debt and/or lowered payments!

    If you are considering undertaking a debt consolidation or restructuring strategy, it is important that you seek advice from business debt settlement experts, like Creditors Relief. We help you avoid expensive options like merchant cash advances by finding the best solution for your business. 

    Don’t put off daily collection calls any longer, contact us for a free phone consultation at 877-312-6478 and we will create a budget that you can follow while helping you to settle and restructure your debt.

    Don’t fall into expensive merchant cash advances that can cause a debt spiral that can sink your business. Creditors Relief has settled millions of dollars in debt for businesses throughout the U.S., and we can do the same for you.

    Call us today.


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