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Nov 2015

When to Get a Merchant Cash Advance and an Unsecured Business Loan?

November 13, 2015
Capify Australia

The world of alternative lending gives us two quick convenient options for finance – the merchant cash advance (MCA) and the unsecured business loan (UBL). Both schemes, taking into account the hassles and risks involved with traditional lending, simplifies the entire process of obtaining cash. Now what we’ll focus on are the scenarios in which each lending scheme would figure in perfectly.

The key feature of a merchant cash advance is the settlement comes in the form of deductions to credit card sales, while in an unsecured business loan, the debtor settles the balance through small daily payments. This means the cash advance works well with business that need to place investments to improve or grow the operations. The loan, on the other hand, is advisable for companies with fast-moving items that have been operational for at least six months.

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Get an MCA when Buying Inventory

Buying new inventory can be costly, but if a business moves in the right direction, the cost of goods will be  exceeded by sales, or in part replenished. The MCA, with its terms directly connected to the inflow of money, gives a company a chance to make a sale or hit its return on investment with the purchased goods.

This is good news for companies that offer numerous items or products that have many ingredients. The overhead can be sizeable for these businesses given the nature of their products and other costs like rent and utilities. The MCA ensures them that the inventory and overhead expenses are covered, allowing business owners to focus more on making a sale and promoting the brand.

Retailers can also avail of the merchant cash advance during the holiday season when huge spike in sales are expected. A company may not have enough stocks to serve large battalions of Christmas shoppers and the cash advance provides the money to exponentially increase inventory. The MCA is the perhaps the quickest way to secure financing. The  online application process  lasts only for a few days, and the sharp increase in assured returns makes it a cinch to settle.  

If the company already has a following and has been operational for six months, an unsecured loan also comes as a good deal, since it will be granted access to highly workable interest rates. Its credit card-like function also extends the life of the loan to sufficiently cover the entire holiday season.

Secure a UBL or MCA when Developing New Products

Apart from its current inventory, a business receives more financial leeway with the merchant cash advance. The elements of potential new releases can be purchased, assembled and then tested on the market. This gives the business a chance to see if its new concepts will be appreciated by its captive audience. If successful, and overall sales are boosted, paying off the MCA won’t be a problem.

Companies that already have saleable items and want additional capital to develop new products can get an unsecured business loan. The existing cash inflow can readily pay off the debt or at least make the expenditures light, as the company goes on to test and produce new product lines. If all goes well, the incremental deductions coming from the loan will be hardly felt.

Get an Unsecured Business Loan for Additional Capital for Online Stores  

Currently, there are over a billion internet users worldwide and many of them are into online shopping. Hot and trending items sell like pancakes, especially for web-based retailers that serve customers worldwide. The thing is, many online businesses don’t have a physical store or or  hold a lot of assets for collateral. In this case, getting a UBL is a good idea.

An unsecured loan can be obtained without collateral, minimizing the financial risk for businesses. Some alternative lenders offer versatile forms of the loan that can be adjusted based on the influx of sales per month. The higher percentiles can be assigned to periods with historically strong sales, and lower increments for periods when business is slow. This favors online stores since a portion of their sales are influenced by the appearance of fresh online trends.

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Consider a Merchant Cash Advance when Expanding the Business

Expansion adds revenue streams for the business, giving it a chance to penetrate more markets and enjoy bigger growth in revenue. Getting there, however, would need capital. A merchant cash advance can help fill that need. Exploring new territories is a huge risk, since there is a possibility that the people in the soon-to-be-explored region won’t be willing to part with their hard earned money. An MCA’s terms help ease the financial burden involved.   

There is no promise of profit when opening a new branch or office, and an MCA addresses that with its rather innovative payment scheme. Since loan settlement comes as percentile deductions to credit card sales, the company pays less if it does not earn much income within the specified period. Of course, the owners must create and implement a  well-crafted sales  to increase the venture’s profitability. An MCA makes business owners worry less about the expenses in the process.

Revive a Struggling Business  and get an UBL

A small restaurant, for instance, has been doing well for the past year, until it hit a lengthy dry spell. The drop in returns can be induced by an assortment of problems like a saturated market, flawed pricing or a cashflow system left unmonitored. Having a favorable credit rating intact, the company can apply for an unsecured business loan and receive advantageous interest rates for repayment.

In doing so, the business receives the funds necessary to tide the business over the lean months. It can be used for hiring better staff, upgrading  its equipment or developing alternative products. It can use the loan similar to a credit line, making economical purchases whenever needed. In other words, the money won’t easily dry out and can be spread easily  to numerous avenues.

The daily repayment schedule affixed to the loan also compels the company to fix its cash flow system as a means of monitoring the outflow of cash. On paper, it can list down its expenses in an orderly manner and match them with the revenues. This allows business owners to see if they are spending too much for particular entries and/or not reaching the full earning potential for its revenue streams. Adjustments can be made and investments can be placed without incurring too much  financial burden.

Truth be told, the MCA and the UBL are versatile enough to be utilised for nearly every scenario, with both the debtor and the alternative lender placed at an advantageous position. Alternative lending platforms like Capify make the terms of both schemes even better  with the way the conditions can be adjusted. And it’s a ll in accordance with the financial performance of their clientele. In a nutshell, business funding need not be complex with the emergence of alternative lending.

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