Merchant Cash Advances: What is an MCA & What Are They Used For?

male small business owner doing finances and planning growth

Merchant cash advances (MCAs) are one of the most flexible forms of small business funding. Unlike some other forms of funding, there are typically no restrictions on how merchant cash advance funds are used, giving small business owners the freedom to use their funds to whatever purpose makes the most sense for their business.

The best way to use a merchant cash advance is to invest in projects and initiatives that will grow your business and increase your revenue. This includes any investment of capital that has a strong and relatively quick predicted return on investment.

What is an MCA?

A merchant cash advance is not actually a loan—it’s technically a non-loan form of financing called an “asset purchase”.

When you receive a merchant cash advance from a lender like Greenbox Capital®, you’ll receive a cash advance up front in exchange for a portion of your business’s future revenue. Your lender will receive a portion of your daily or weekly debit and credit card sales until the advance has been repaid (along with any fees).

Learn more about how merchant cash advances work.

GREENBOX TIP: Since merchant cash advances are repaid automatically based on a set percentage of your daily or weekly credit and debit card sales, using your funding to boost sales and increase your transactions will help to shorten the length of time it will take to repay your MCA. This means your fees and funding costs will be lower over the lifetime of your merchant cash advance.

What is a merchant cash advance used for?

MCAs can be used for just about any purpose. Here are 1 of the most common things a merchant cash advance is used for:

  1. Providing additional cash flow
  2. Purchasing inventory
  3. Boosting marketing and advertising
  4. Hiring new employees
  5. Repairing or purchasing new equipment
  6. Building a new website
  7. Investing in education and training
  8. Remodelling or expanding
  9. Covering seasonal costs
  10. Purchasing raw materials
  11. Covering unexpected expenses

Let’s take a closer look at each of these uses.

1. Providing additional cash flow

Lack of capital or cash flow is the most common challenge faced by small business owners in any industry. Uncontrollable global events like the COVID-19 pandemic, as well as normal operational challenges like long accounts receivable periods, predictable seasonal changes in sales and revenue, unplanned employee turnover, and unexpected emergencies or expenses can all put a strain on a small business’s cash flow.

Merchant cash advance funding can help fill in any gaps in your business’s cash flow, providing you with the working capital you need to maintain your business’s normal operations when cash flow is tight.

2. Purchasing inventory

Merchant cash advance funds can be used to purchase inventory in bulk to reduce costs, or to stock up on the inventory you need for your busy season or an upcoming promotion without straining your cash flow before profits start rolling in.

Special inventory financing options are available from some lenders, but these loans can only be used to purchase specific inventory, and the inventory acts as collateral to secure the loan. Merchant cash advances do not require collateral, and can be used for other purposes as well, such as promoting an upcoming sale or boosting your marketing and advertising ahead of your busy season.

3. Boosting marketing and advertising

If you want to kickstart your business’s marketing and advertising efforts, you’ll need to invest some capital up front. If you don’t have this cash on hand, a merchant cash advance can provide the working capital you need to get the ball rolling on your new marketing campaigns before profits start rolling in, whether you’re investing in targeted online advertising, direct mail, or any other traditional marketing strategy that will help bring in more customers, more patients, and more revenue.

4. Hiring new employees

Whether you want to expand your team to grow your business or you need to replace an employee to maintain your normal operations, a merchant cash advance can provide the working capital you need to hire and on-board a new team member who will help you generate more revenue in the long run. For example:

  • Medical practices can hire office staff to reduce administrative burdens, or new practitioners to offer more treatment options and expand their patient roster
  • Retail businesses can take on extra employees for their busy season
  • Construction businesses can hire additional workers to complete projects on time and avoid large penalties for late completion

5. Repairing or purchasing new equipment

Old equipment and technology can slow down your operations and have a significant impact on your ability to provide top-notch products and services to your customers and clients. Whether you’re repairing existing equipment or you’re ready to invest in heavy equipment, new computers for your office, new store fixtures, or even new software that will make it easier to operate your business, an MCA can provide the working capital you need to repair or purchase the equipment you need to fuel your growth. For example:

  • Medical practices can invest in patient management software that keeps track of patient histories, treatment preferences, and more
  • Retail businesses can implement faster point of sale systems or customer relationship management platforms to develop loyalty with their clientele
  • Construction businesses can repair heavy equipment or replace outdated or broken-down equipment to keep the jobsite functioning safely and smoothly

Similar to inventory financing, special equipment financing options are available from some lenders. Equipment financing loans can only be used to purchase the specific equipment in question, and the equipment acts as collateral to secure the loan. Merchant cash advances do not require collateral, and can be used for other purposes as well, offering more flexibility to small business owners in any industry.

6. Building a new website

It’s imperative that all businesses have an online presence that offers a pleasant experience, especially as customers and clientele continue to transact and engage online after the COVID-19 pandemic.

Creating an attractive and easy to use online experience for your customers and clients often takes a major investment of capital. A merchant cash advance can provide the funds you need to hire a designer or a marketing agency to build your website, whether you are creating a web presence from scratch or you want to add new features to your existing website. For example:

  • Medical practices can offer online booking for new appointments
  • Retail businesses can open online stores to increase sales in their local community, across the country, or even internationally
  • Construction businesses can collect information from potential clients through an online form and use this information to reach out with a detailed quote

7. Investing in training and education

Using merchant cash advance funds to invest in training and additional education for yourself or your staff can help you offer news products and services, open up new revenue streams, and continue to grow your business.

Some fields, such as medical and legal professionals, also must complete a certain number of continuing professional development hours to maintain and enhance their understanding of specialized topics. MCA funding can be used to complete these professional development requirements without putting additional strain on your cash flow.

8. Remodeling or expanding

Some businesses, such as law firms and medical practices, need to present a professional, credible image, which means they need an attractive and well-furnished office space with reliable technology and a comprehensive library of resources. Prioritizing these purchases can be a difficult financial decision for smaller or newer businesses.

Whether you’re renovating your existing office space, are expanding to a larger space, or are opening a new location, MCA funds can provide the working capital you need to maintain your operations while you remodel or relocate.

9. Covering seasonal costs

Seasonal costs like inventory, salaries and wages for temporary staff, and other activities that will help prepare your business for your annual busy season can put extra strain on your cash flow, especially if you’re emerging from your off-season and revenue has been slower for a few weeks or months. MCA funding can provide the working capital you need to make sure your business is ready for your upcoming busy season.

In addition to helping you prepare for high-season demand, merchant cash advance funding can also be used to shore up cash flow during your off-season, and is ideal for businesses that are more susceptible to seasonality, such as landscapers and contractors.

10. Purchasing raw materials

Sometimes, businesses need to purchase raw materials to bid for or get started on large projects before their clients pay. This is particularly common for construction businesses, who often have high up-front expenses to get started on new projects and long accounts receivable periods. Merchant cash advance funding can be used to purchase these raw materials so your team can get started without placing an extra burden on your cash flow or pressuring your clients to pay their outstanding invoice.

11. Covering unexpected expenses

Unexpected expenses like repairs or costs to retrain new employees can put pressure on a small business’s cash flow, even if your sales are strong and your cash flow is typically stable. Applying for traditional loans to cover these expenses can take weeks or months with no guarantee of approval, leaving small business owners cash-strapped and at a loss for how to maintain their normal operations.

Merchant cash advances, on the other hand, can be approved with funds deposited in as little as one business day, making them an ideal source of funding for businesses with otherwise strong cash flow that are facing unexpected expenses.

Is a merchant cash advance right for you?

Merchant cash advances offer a number of advantages over financing options offered by traditional lending institutions, including:

  • Simplified applications with less paperwork and less rigorous approval requirements.
  • Faster processing and approvals, with funding available in as little as one business day in some cases.
  • More flexibility and more room to negotiate terms.

In addition to MCAs, many types of alternative funding are available to businesses who need funding quickly, don’t meet the strict criteria of the SBA and other traditional lenders, or would prefer not to seek funding from friends or family members. With funding from as little as $3,000 up to $500,000, business owners can access alternative funding that suits their unique needs, including merchant cash advances, term loans, invoice factoring, and business lines of credit.

Learn more about merchant cash advances
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