Merchant Cash Advances Boost Your Business in Tough Times

4 min read • Aug 22, 2021 • Grant Olsen

A merchant cash advance can help strengthen your business during difficult times. Even before the stress and trauma brought upon us by the COVID-19 pandemic, most small businesses in America experienced cash flow issues. In fact, a pre-pandemic JPMorgan Chase study revealed that the majority of small businesses only had enough cash to cover 27 days of average outflows, and the top 25% of businesses only had a cash buffer sufficient for 2 months. This means that cash reserves, which are crucial for everything from capitalizing on growth opportunities to surviving catastrophes, were in scant supply.

Flash forward a few years, and those cash reserves have taken on a whole new level of significance. With lockdowns, supply chain disruptions, and changing customer trends threatening to decrease your bottom line, there’s rarely been a time when cash was more important and simultaneously hard to come by.

The Era of Scant Cash Reserves

This certainly isn’t to say that small business owners are being irresponsible with their money: the issue of limited cash flow is merely the result of tight profit margins. When you’re strapped for cash and pouring your heart into your business, there often isn’t a lot of extra to go around.

Perhaps you’re a studious planner and don’t think you’ll ever be caught in a situation where you’re desperate for cash. That’s great if you’re committed to planning for your small business. It will undoubtedly save you from lots of headaches—and even heartaches—in the future.

But plans are contingent on factors you can’t always control (see Exhibit A, which is the recent pandemic). Your efforts will never be wasted, but they need to be met with a healthy dose of flexibility. As President Dwight Eisenhower once said, “Plans are worthless, but planning is everything.”

When the unexpected makes cash essential, a popular solution is a merchant cash advance.

Merchant Cash Advances Are a Quick, Easy Solution

With a merchant cash advance, you can obtain loan amounts of up to $200,000. This type of financing is engineered for speed, so you can have your money in as little as 24 hours. And you can probably plan on the loan’s term only lasting a couple of years.

This is important because when you need fast cash, your options are limited. After all, traditional lenders aren’t usually known for their rapid payouts. And when waiting weeks or even months to hear back on your loan approval isn’t an option, a cash advance becomes much more enticing.

How Does a Merchant Cash Advance Work?

A merchant cash advance enables you to leverage your future earnings in order to gain convenient access to money. Once the funds are advanced to you, you’ll repay the loan by having a percentage of your daily credit card deposits withheld for the lender. An interesting note: because it’s considered a sales transaction rather than a traditional loan, it’ll actually stay off of your credit report.

With their streamlined funding and ease of use, merchant cash advances are engineered to get small business owners out of tough spots. So if you have creditors bearing down on you or an essential piece of machinery just broke down, you’ll likely find yourself anxious for the fast relief that this type of financing provides.

On the flip side, a merchant cash advance is also helpful when there’s a great opportunity you simply can’t pass up. For example, if your business has been stuck in neutral for a while but you see something that could really spur growth, this type of financing could empower you to move forward with your plan.

Merchant cash advances are also impressively versatile and can be used by all types of business structures. It doesn’t matter if you’re a restaurant trying to replace a broken oven, a delivery service expanding to new territory, or a law firm fending off overzealous creditors—a merchant cash advance could be a good fit.

The Process of Qualifying for a Merchant Cash Advance

While traditional loans are famous for mountains of paperwork and gratuitous credit pulls, getting a merchant cash advance is a much simpler process. This is because your qualifications are determined largely by your business’s performance, not stickier things like credit scores and financial histories.

To this end, a lender would want to review your bank statements from the past 4–6 months—basically, your credit card transactions will make or break things for you. So even if you haven’t been in business for much longer than a year, when you’ve got more than $2,500 in monthly credit card transactions, your chances of approval are probably bright.

Lenders will be focusing on the likelihood of getting repaid, so if your business has been relatively successful, they’ll see that as a green light. And this unique approach to approval is reflected in the fact that there are typically much higher approval rates for merchant cash advances than for a traditional business loan.

Grant Olsen

Grant Olsen is a writer specializing in small business loans, leadership skills, and growth strategies. He is a contributing writer for KSL 5 TV, where his articles have generated more than 6 million page views, and has been featured on FitSmallBusiness.com and ModernHealthcare.com. Grant is also the author of the book "Rhino Trouble." He has a B.A. in English from Brigham Young University.