Small businesses account for more than 99% of all American businesses. On top of that, they employ nearly half of all the nation’s workers. Despite these dominant numbers, the fact remains that small businesses often have major cash flow issues.
Most small businesses have a cash flow conundrum.
One JPMorgan Chase study found that the majority of small businesses only have enough cash to cover 27 days of average outflows. Of the businesses surveyed, even the top 25% only had a cash buffer sufficient for two months. This means that cash reserves, which are crucial for everything from capitalizing on growth opportunities to surviving catastrophes, are in scant supply.
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 and soul into your business, there often isn’t a lot of extra to go around.
Given these stark statistics, the Forbes article summarized the whole situation thusly: cash is king. But where do you get cash when finances are often so tight in the small business world? One popular solution is a merchant cash advance.
A merchant cash advance is 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 all 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 get 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. And here’s something interesting to note: because it’s considered a sales transaction, rather than a traditional loan, it’ll actually stay off your credit report.
Many businesses use merchant cash advances to get out of a tough spot. So if you have creditors bearing down on you or an essential piece of machinery that just broke down, you’ll likely find yourself anxious for the fast relief this type of financing provides.
On the flipside, a merchant cash advance is helpful when there’s an opportunity that’s simply too good to pass up. For example, if your business has been stuck in neutral for awhile, but you see something that could really spur growth, this type of financing could empower you to move forward with your plan.
It should also be pointed out that merchant cash advances are 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 that’s fending off overzealous creditors, a merchant cash advance could be a good fit.
It’s pretty easy to get 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 check out your bank statements from the past 4-6 months. 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, if you’ve got more than $2,500 in monthly credit card transactions, your chances of approval are probably bright.
Basically, a lender will be focused on the likelihood of getting repaid. 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 than what you’d see with a traditional business loan.