Any small business can need funding when facing unforeseen costs that adversely affect its day to day operation. For example, an unexpected drop in sales volume, damaged equipment, a loss of inventory, or a delinquent account can put the squeeze on your cash flow, and applying for funding can be the only way out.
Alternatively, your small business may need funding to buy more inventory, equipment, and hire and train new staff members for a busy season. You may also need financing to prepare for expansion.
Turning to the bank for funding can be frustrating for your small business. Not only are there many hurdles to jump over, such as presenting an impressive business history and a strong business credit score, but you may have to provide collateral. What’s more, it can take months for you to get approved.
A good alternative for a small business is a Merchant Cash Advance (MCA). Not only does an alternate funder like SharpShooter Funding provide this option, but they’re a reputable and trustworthy company driven by the belief that small businesses are the heart of the Canadian economy. Working in partnership with legendary Canadian wrestler Bret “The Hitman” Hart – they support small businesses with top-of-the-line data science, state-of-the-art technology, good relationships, and superior customer support.
An MCA is a good option if your business lacks the credit to secure a loan but is in good shape and has a strong cash flow projection. To secure an MCA, your projected sales should be healthy because it is an upfront sum of cash in exchange for a piece of your future sales. Here are some advantages to securing an MCA:
1. It is Fast
Using the platform, you can apply in minutes and are funded quickly. This can help you meet your needs much faster than when applying for conventional sources.
2. It is a Fixed-Price Advance
An MCA is repaid daily or weekly until it’s completed paid off. For example, if you borrow $10,000 based on your future sales at a rate of 1.14, then you must pay off $11,400 regardless of how quickly or slow you return the sum.
Compare this to the interest charged on funds you receive from a bank. If your sales are slow and you take longer to pay it off than expected, then the interest can rapidly pile up. An MCA is also unsecured, so you don’t risk losing collateral.
3. It Doesn’t Affect Your Credit
An MCA is like purchasing a tranche of money. It’s like an investment into your future with no interest involved. It’s also unregulated. That’s why it won’t affect your credit score.
4. It offers Flexibility
From the right funder, An MCA can be paid back daily or weekly. The amount you pay varies with your sales volume, so your business isn’t under pressure. There’s always a percentage of the daily sales paid to the issuer. If your business fails despite your best efforts, then you’re not obligated to repay the advance.
However, an MCA isn’t risk-free, especially when you accept it from a less reputable funder. From the wrong source, it can be described as a payday loan for a small business. Fees and can be high and repayment terms can be fast from issuers that adopt predatory tactics. Businesses that are unaware of all terms and conditions can find themselves in unsustainable debt cycles. For example, if the MCA has an annual percentage rate (APR) of 350% with fast repayment terms, then your small business could be placed under undue pressure.
To find a way out of this, many small businesses desperately accept more than one merchant cash advance to stay operational. Unable to pay the installments of the principal funding, they are stuck in a vicious cycle of re-borrowing.
Be wary of issuers that aren’t upfront about the APR. Ask to see all documents before signing the dotted line. If the funder claims that some documents aren’t available or that the availability of the MCA is time-sensitive, then walk away. Instead, partner with a reputable and honest funder like the one mentioned above that offers transparency.
You can also consider alternative financing solutions, such as bridge funding. This can come in handy in the following situations:
- Your capital to manage your day to day operations is running low
- Your operational costs are increasing
- Your business needs to maintain, repair, or upgrade equipment quickly
- Your rent has grown too high and your business needs access to quick funds to relocate
- You need to buy equipment to take advantage of a business opportunity
- Your business is readying for an expansion
Bridge funding can also help a business that’s in a bind and waiting for its next tranche of funds from a traditional funder. In such a situation, a bank is unlikely to approve more funding. Bridge funds are considered low risk because they’re small and can easily be paid off. Because of this, they’re also easier to acquire from an alternate funder. Essentially, business funding is a means to an end.
Moreover, a reputable alternate funder can provide them faster because of their low-risk nature. When securing a bridge fund, look for manageable repayment terms so your business isn’t under pressure to return them.
If your business doesn’t have the projected sales to qualify for an MCA from a good alternate lender or can’t qualify for bridge funding, then don’t risk accepting high APR and fast repayment terms from a predatory funder. Instead, consider getting short-term funding from a credible alternative funder. If your business has bad credit, then you can leverage your personal credit. Otherwise, you can apply for a smaller funding amount and repay it quickly to rebuild credit. Leveraging your assets, collateral, a cash down payment, or a guarantor can also improve your chances of getting approved with bad credit.
These are some facts about an MCA. There are many advantages to securing one from a credible alternative funder, especially if your business has a healthy sales volume but lacks a great credit score. However, it’s better to explore other funding options than to settle for an MCA from an unreputable funder that offers unreasonable terms.