A second option is to bring in an equity partner to secure additional capital. This process is more difficult than traditional bank financing because the pool of investors for a small business is exceedingly small. Private equity firms are out of the reach for all but a small minority of small businesses. Further, the amount of ownership in relation to the investment that may be offered will be impossible to objectively evaluate. The sweat equity an owner has invested in their business is rarely, if ever, given sufficient credit in negotiations. It will always come down to where the business is today and where will it be going in the future.
Fortunately for small business owners, they have more options than they might realize. A cottage industry has grown into an accepted and tested source of ready capital for small businesses. Direct funding companies provide small businesses with access to immediate capital, at times, in less than 24 hours. Funding is based on the strength and consistency of the business’ monthly and daily cash flows. Poor personal credit scores are not hurdles for these products, nor is the type of industry or geographic location. Funding can be arranged with as little information as an application and submitted bank statements. Once a track record is established, access to ready capital that is limited by the business’ cash flow is unlimited. After their initial advance is 50% repaid, they become eligible for another round of financing, with a higher approval, better rate, or both. Over time, they can grow their financing options along with their business.
A few years back, I was starting to feel like it was time to package and sell my three furniture stores in Southeastern Pennsylvania. I discussed my situation with a business broker and was shocked to find that my net, after paying what was owed, would not get me started in anything else or replace my lost income from the stores for more than 6 months. My business broker’s suggestion was simple, do what I could to grow the top and bottom lines of the stores.
It was an easy solution, but how? Because of the economic downturn caused by the housing crisis that had lasted for almost a decade, my credit was in the toilet and bringing in an investor would simply have watered down my interests so that my share of any sale would have left me in the same place as before the investor was brought in.
After researching short-term merchant cash advance loans, it became clear that with careful planning, the costs which seemed high, were easily absorbed and proved a small part of growing my business. My plan was to utilize the funding for each major sale during the year, using the funds to advertise and expand my inventory just prior to each sale. We were more than doubling our money from the margins and we knew that each customer had 3-4 turns based on their purchases and recommendations to family and friends. Understanding that furniture purchases in large part were major impulse buys, we were able to get customers the furniture they wanted in their homes the next day.
Within 18 months, I was able to complete the sale of the stores. Over that time period, I was able to repay all of my debt and my net was substantial. All of this without bringing in any new equity partners to share with me what I had built and sweated over for almost twenty years.
Merchant cash advance loans, as an industry, is growing at a phenomenal rate irrespective of all the negativity it receives from standard financing sources. The reason for this growth is in three simple reasons: the simplicity of the industry’s requirements, that fact that it is for all practical purposes unsecured financing and that they are available to you when the naysayers are nowhere to be found.
Restaurants by the very nature of their operations are a natural fit for merchant cash advances. Having a merchant cash advance can allow your restaurant to thrive. You’ll have financing to put towards achieving your restaurant’s goals, and can remit your advance at the pace of your restaurant’s sales.
A simple application process – If you’re applying for a merchant cash advance from a trusted alternative lender, there will be certain standards. For instance, they’ll want to see your most recent credit card statements. This is to ensure that your business receives enough credit card transactions to successfully utilize and remit this product. Overall, the application process shouldn’t be too complex. If your business frequently receives credit card transactions, and you run your business in a responsible manner, your application process should take a few minutes.
A high approval rate – Merchant cash advances for restaurants have a high approval rate because an important part of their evaluation is the consistency of daily cash deposits. Restaurants are natural fits for these evaluations. While getting approved for some financing products rely heavily on your credit score, this isn’t the case for merchant funding.
Have money to grow your business – Once you receive a restaurant cash advance, you’ll have money available to use for whatever your restaurant is currently lacking. Perhaps your restaurant’s interior could use some TLC, or you’re frequently understaffed. Getting a restaurant cash advance will enable you to proactively invest in areas of your business that need to be enhanced.
Have money for emergencies – Perhaps you don’t have any major ideas for improving your restaurant. Still, you can’t predict the future! What if your restaurant experiences an unforeseen emergency, such as having an oven break or running out of required inventory? If you have a merchant cash advance, you’ll have the peace of mind and will be able to navigate these unexpected twists and turns that come with running a small business.
5. Flexibility based on your business’s sales – With restaurant merchant funding, remittance is based on your business’s future credit card sales. Therefore, if your restaurant goes through a lull in sales, you won’t be expected to remit a set amount.
While these comments are written specifically to professional practices, they equally apply to all businesses. Growing your business can be a challenging venture. Investing in advertising, equipment, skilled staff, and more, while accumulating capital to achieve your goals can make for a delicate balancing act. To sidestep the entanglement of bank loans, turn to merchant cash advances, or MCAs.
Traditional loans usually have a designated purpose, such as for fixed assets or property. Using funds for purposes other than their contractual designation can leave professional practices in breach of the terms of the loan agreement. MCAs, on the other hand, can be used to anything your practice needs. From advertising to equipment, supplies, hiring additional staff, practice acquisitions, and more, MCAs can be used for multiple purposes. Merchant cash advances have few, if any, restrictions on the use of the funds. You are free to apply the funds in how you deem best to grow your business.
One of the main reasons professional practices prefer MCAs is that they are not debt. Merchant cash advances are an infusion of working capital structured around future receivables. No collateral is necessary, and credit scores are not negatively impacted. Your practice received an advance in working capital, which can be put toward growth projects. As clients pay their bills, a small percentage goes toward repaying the balance owed on the advance.
Another nice thing about MCAs is that there are no prepayment penalties triggered if you want to pay off your balances ahead of schedule. This is part of the flexibility that merchant cash advances offer. Instead of being locked into a payment schedule, the percentage of receivables paid allows practices to repay the advance without impacting finances during lean billing periods. On the other side of the coin, when a practice is receiving many payments in a short period of time, the balance on the MCA can be zeroed out quickly, without triggering any hidden fees.
You will be inundated by phone calls and emails which promise easy access to capital. Properly vet the person supposedly representing you to make sure they will not simply take your information and ship it to dozens of direct funders. The easy promise you heard will guarantee a commission to the representative you only met by phone, but dramatically affect your personal credit score and your information will be given to groups without your direct permission. Make sure your representative is more interested in a long-term relationship to help you meet your objectives, rather than making a quick sale for a quick buck.
To guarantee the future of your business, you should frequently assess how you can improve your existing strategies. Perhaps you need to update equipment, or want to hire more employees. In almost all cases, having funds for these projects will enable you to take your business to the next level. In many cases, what seems obvious is often overlooked…….
Market your business – If your business is making consistent sales, you might neglect your marketing efforts. Unfortunately, this can be detrimental to your business in the future. Customer attrition is a natural event, new customers are the lifeblood of the future of your business. To continue attracting customers, you can invest in marketing initiatives, such as direct mail pieces, sponsored social media posts and online advertisements. This will be money well-spent, as you’ll be focusing on the promotion of your business’ services or products.
Use as additional cash flow– Having ample cash flow can make or break a business. That’s why many business owners opt to use their loan in order to have enough cash flow to run their operations. Having a loan to use as steady cash flow will allow you to have money for when sales decline, you want to pay for future initiatives or can serve as a cushion in the case of an emergency.
Equipment – If your business relies on equipment, you must make maintaining it a priority. With your business loan, you can pay for repairing, leasing or purchasing equipment. It can be challenging to afford equipment while paying for other business costs, so devoting the use of your loan to equipment should be considered.
Payroll – The quality of your staff can greatly affect the longevity of your business. It is pivotal that you invest in building a strong team of professionals, which is why you should use your business loan for growing your team. On-boarding and payroll costs can accumulate, especially if you’re aiming to fill multiple positions.
Pay your bills – Running a business requires a myriad of costs. If you’re overwhelmed by incoming bills each month, or have acquired significant debt, having a loan to cover these payments can be valuable. Paying off debt can put your business back in good financing standing, and having money to pay bills will eliminate the chance that you accumulate future debt.
Renovations – The longer you run your business, the more updates you’ll have to invest in. This could be interior or exterior remodeling, or equipment updates, among other needs.
Technology– Regardless of your business’s industry, there is likely technology available that could make your job easier and more efficient. Whether it is automation software, communication tools, a mobile app or other technology, your business’s processes can be improved upon.
Bridge financing– Does your business make money through bidding on large projects, in which you’re paid partially at the beginning and end of a job? If so, you might profit from bridge financing. This money can be used for purchasing materials, equipment upkeep and paying employees. By doing this, you’ll be able to successfully complete projects, while bidding on additional jobs!
Pay your taxes – Do you dread paying your taxes each year? They can be costly, and you may worry that your business will be low on cash afterwards. Don’t fret – once you’ve received a business loan, you can pay your taxes and still have money to put towards your business’s needs.
Accomplish your expansion plans – If your business is thriving, you might have ideas on how you can continue to grow. Many business owners consider expanding their business, either by opening another location, expanding their existing location or increasing their products or services.
Inventory – Whether your business sells inventory or you simply need certain items to operate, inventory can be crucial. Using your business loan to purchase inventorywill ensure that you don’t run the risk of being unable to pay for inventory.
During the holidays – The holiday season can provide opportunities for business owners to take advantage of the increase in customer spending. But to reap the benefits, you’ll need to invest in your business during the holiday season. So, to do this, use your business loan for holiday initiatives, such as hiring seasonal staff members or purchasing additional inventory, or increasing your marketing efforts to promote special holiday deals.
I was in the furniture business for many years and, at times, knew that I had to make a choice between putting inventory on the floor or making payroll. It wasn't bad planning or poor decisions, it was situations that were out of my control. Even though I could not control bad weather or an employer laying off workers in the area, the buck stopped with me. Laying up nights, fretting over what to do, much less being able to take my own salary, affected my business and my family.
I know owning a small business is both exhilarating and painful. There are times where the money is just not there to do what you need to do, whether it is a short‐term emergency or taking advantage of a unique situation to grow your business. Just like me, the buck stops with you. We both know it is impossible to deal with a bank these days. You know that for over a decade, banks have had no interest in helping small businesses.
I was in the furniture business for many years and, at times, knew that I had to make a choice between putting inventory on the floor or making payroll. It wasn't bad planning or poor decisions, it was situations that were out of my control. Even though I could not control bad weather or an employer laying off workers in the area, the buck stopped with me. Laying up nights, fretting over what to do, much less being able to take my own salary, affected my business and my family. I know owning a small business is both exhilarating and painful. There are times where the money is just not there to do what you need to do, whether it is a short‐term emergency or taking advantage of a unique situation to grow your business. Just like me, the buck stops with you. We both know it is impossible to deal with a bank these days. You know that for over a decade, banks have had no interest in helping small businesses.
There is another side to the story. While problems face all of us, you also need to be able to take advantages of unique opportunities when they occur to help grow your business. We both know that these opportunities do not come around that often, and when they do, you will need additional funding to make the move. Whether it is opening a new location, taking advantage of an incredible buying opportunity or the closing of a major competitor, knowing that you have the funds available allows you to take advantage of the situation immediately. Not taking advantage makes no sense. You know that your bank has no interest in working with you.
For all of us, the bottom‐line with regard to making the decision to go with a Merchant Cash Advance, is the nagging question ‐ it looks so darn expensive.
When I faced that question, it took me a bit to realize that the answer was right in front on me ‐ compared to what. I realized that comparing it to bank loans made no sense since these were totally unavailable. The comparison is simply one which looks at the cost of not taking advantage of an opportunity or helping to bridge an emergency situation.
Ask yourself, what will it mean to me and my business if I don't move on that truckload of discounted inventory or what if that blown HVAC system makes it impossible for customers to be in the store. We all face these decisions at some point.
For all of us, the bottom‐line with regard to making the decision to go with a Merchant Cash Advance, is the nagging question ‐ it looks so darn expensive. When I faced that question, it took me a bit to realize that the answer was right in front on me ‐ compared to what. I realized that comparing it to bank loans made no sense since these were totally unavailable. The comparison is simply one which looks at the cost of not taking advantage of an opportunity or helping to bridge an emergency situation. Ask yourself, what will it mean to me and my business if I don't move on that truckload of discounted inventory or what if that blown HVAC system makes it impossible for customers to be in the store. We all face these decisions at some point.
I remember receiving emails promising unlimited amounts of money, stating that everyone is qualified and payback terms were close to insignificant. All of these emails are from brokers that never owned or managed a business, didn't understand what I faced everyday and were only concerned with how much commission they would make by selling me.
Then one day, I accidentally clicked on an email that talked about my situation, from someone that sounded like they knew what I was going through. Your time, like my time, is valuable, and there is never enough in a day. Do we want to provide funding to you, of course. But our objective is to develop a long‐term relationship with you, helping you to get your business to new levels.
I remember receiving emails promising unlimited amounts of money, stating that everyone is qualified and payback terms were close to insignificant. All of these emails are from brokers that never owned or managed a business, didn't understand what I faced everyday and were only concerned with how much commission they would make by selling me. Then one day, I accidentally clicked on an email that talked about my situation, from someone that sounded like they knew what I was going through. Your time, like my time, is valuable, and there is never enough in a day. Do we want to provide funding to you, of course. But our objective is to develop a long‐term relationship with you, helping you to get your business to new levels.