Small business financing is a complex topic, and how much of it you need to master depends a lot on your business model, because most commercial financing is built around a certain company structure, billing model, or industry. If your business relies on a lot of credit card transactions, you have access to a unique short-term financing option designed to bring you working capital in the form of an advance on your merchant account’s revenue. This gives you working capital when you need to stock up or staff up ahead of known demand surges.
Merchant cash advances are designed with the needs of public-facing companies who rely on credit card transactions for a significant amount of their business, which means more than just basing the advance off the value of that business. It also means providing flexibility, to help you manage payments in the run-up to increased business and to reduce the time spent in repayment when business booms. They accomplish this by tying payment to the income you get from credit transactions. A typical agreement is for around 30% of the incoming funds until payment is completed, but sometimes you’ll find lenders who settle on a higher or lower number.
There is a benefit to forming an ongoing relationship with a lender whose policies suit you if merchant cash advances are a resource you want to draw on regularly, too. Like with many other forms of lending, repeat business with a positive outcome through one lender means forming a relationship that could help you get better terms going forward. At the very least, it means streamlining your applications by working with people who know your business and who will scale your cash advance values to reflect growth as you expand.
That means you can use these advances to build your business. Accessing the working capital needed for your next big move and then relying on the increased sales volume to cover the payment is a good way to build a cycle of expansion if your marketing efforts can keep bringing in the customers so you make those projections for repayment happen. For companies that regularly deal with cyclical demand surges due to holidays or seasonal needs, that can be an extremely powerful tool. Even for companies with fairly stead demand year-round, it can provide a path to adding new lines of merchandise or expanded services, which can help you expand your business by meeting more needs for more customers. Either way, merchant cash advances can provide you with access to the funds you need to realize those goals.