Thanks to the merchant cash advance product, Amansad Financial can connect clients with the quick and convenient funding that they need. This is still a relatively new sector for us, but we have already had the chance to help a number of promising small businesses expand into larger enterprises – and we have learned some of the ins and outs of recommending specific advance levels and repayment programmes that will meet the needs of businesses at different places along the growth continuum.
Merchant cash advance industry report
A lot of the most successful borrowers have been from the retail industry. One reason why retail businesses work so well with merchant cash advances is the system by which companies in this industry make money. In some industries, when you make a sale, you have to give your customer 60 days to make the payment – but the suppliers that you ordered the materials from to complete the order need to be paid within 30 days. In the retail industry, companies bring in money each day that they are open, and the vast majority of them have the ability to process credit and/or debit card payments. Even businesses that have not set up a processing system have access to such small merchant solutions as the Square swiper, a device that plugs into a smartphone and allows for the processing of card payments.
Merchant cash advances allow borrowing companies to borrow a set amount in an advance, and each day a percentage of their debit and credit card receipts goes to the lender. We work together with the clients to determine what that percentage will be. If you make a lot of your money from cash and checks, then you can adjust that percentage higher, but if the vast majority of your revenue comes from credit and debit cards, then you will want to keep that percentage lower – after all, you don’t want the payments to eat into your cash flow.
If you’re in severe financial straits, a merchant cash advance can be a lifeline – but that is often a situation in which an advance can turn into a trap. It’s one thing if you’re in a seasonal slump (such as a snow cone stand owner in the winter time), but it’s another thing if your business is in a low revenue pattern that does not show any signs of improving in the near future.
The best time to take out a merchant cash advance is not as a last resort to pay this month’s bills. The best time is when you see a growth opportunity, or when you need to make some one-time upgrades to push a successful business to even greater heights.
Let’s compare two hypothetical restaurants. One has seen its revenues steadily decline over the last decade. The owners (a husband and wife) are fighting all the time; the inside of the restaurant has become covered in dust, and the kitchen is a nightmare as far as health code issues go. Customers who had loved to eat at the restaurant now can barely stand to go inside. A merchant cash advance for this restaurant could make the difference – IF they can agree on a strategic plan for marketing the restaurant (perhaps even re-branding it) as part of major renovations.
A second restaurant has been open for a couple of years. The facilities are still new and in solid order, and profits are running well. The cuisine is primarily Asian fusion, and the owner thinks that he can open a second location and do just as well. Unfortunately, this second location is located in a part of town that has mainly senior citizens (the first location is near downtown, with young professionals coming in night in and night out to eat). Even though the cost of the lease is lower, the likelihood of getting that demographic in to eat Asian fusion is somewhat low, but the owner has not put together a marketing plan. This is an example of a merchant cash advance that could be a disaster, once the owner sinks all that money into the new location…and doesn’t see any results.
So while a merchant cash advance can revitalize a retail business, that business needs a plan of action – and a workable marketing scenario. Are you considering this for your retail business? Give one of us at Amansad Financial a call today, and we will talk about your situation and help you decide whether the merchant cash advance is right for you.