Opinions expressed by Contractor the contributors are theirs.
You are reading Entrepreneur United States, an international Entrepreneur Media franchise.
Businesses across the country are emerging from the brunt of the persistent Covid-19 pandemic with new and ever-changing needs – and surprisingly few financing options present themselves to meet them. Traditional bank loans, lines of credit and other resources are insufficient, and it is entrepreneurs who lack them.
The events of 2020 indiscriminately forced businesses of all sizes to be even more agile and adaptive. New outdoor structures, safety gear to meet regulations, stronger e-commerce – all of this means business owners now have days, not months, to adapt. Changing directives, labor shortages and structural changes all require quick decision-making and funds quick. The problem is, for most businesses, access to quick and easy capital just doesn’t exist.
Related: Free On-Demand Webinar: How To Improve Your Business’s Cash Flow
Small businesses are strapped for cash
While small businesses make up 99.9% of all U.S. businesses and employ 47.1% of the nation’s workforce, their finances can be incredibly fragile – fluctuating sales and high spending make it difficult to save. – and the Covid-19 pandemic has really shown us how small the country’s small businesses are. The majority of businesses with monthly expenses of $ 10,000 had only enough cash on hand to survive for two weeks when the pandemic hit and the closures started. And that number refers to their standard monthly spend, not what is needed for additional infrastructure, staff, or new products.
What does a business owner do when she needs $ 50,000 to pay her team and build an outdoor catering structure for her 18 month old restaurant? She only has a few weeks before the money runs out and little time to devote to the process. Big bank loans and lines of credit are hard to come by and come with a mountain of paperwork. They often require 24 months of profit – a difficult question early in the life of any business – even if it is headed for success. Lines of credit could be an option, as long as your credit is good enough to avoid interest rates of up to 80%.
Many business owners have turned to the options offered by the government, which has provided a stopgap for many. However, some programs, such as the PPP and the RRF, have recently ended. And data shows that businesses in communities of color were the latest to access these types of loans because of their greater likelihood of being unbanked or underbanked. To make matters worse, these loans are not easy for a layman to understand, and their applications can be maze-like, reducing the chances of approval.
Restaurants are a prime example of the trap businesses are caught in. Many hospitality workers have changed careers during the pandemic, and establishments are now short of critical staff. To attract workers and combat employee turnover, they are offering higher wages, better benefits and signing bonuses, all at the expense of the bottom line. But they cannot use their full capacity to make a profit without a full staff. They need an injection of capital with a high chance of approval to drive hiring, increase capacity, and maximize profits in the end.
Related: A Post-Pandemic Survival Guide For Restaurants
Merchant cash advances are an agile and accessible solution
Homeowners never had time to waste, and now they have less time than ever before. Businesses need a quick and easy way to get capital that doesn’t require months and months of constant profit so that they can seize new opportunities that will increase long-term growth. Merchant Cash Advances (MCA) are a financing solution that can meet these needs: only a few months of profits are needed, some have a quick online application, and you can receive the money overnight or overnight. .
How does a merchant cash advance work?
A Merchant Cash Advance gives business owners between $ 10,000 and $ 250,000 to fund hiring, buying, building, repairs – whatever they need to grow. With an MCA, a business owner has complete control over how he uses his funds.
Essentially, a merchant cash advance lender purchases a portion of a company’s future sales and advances the money. The advance is then repaid at a factor rate of about 1.2 to 1.5 – there is no compound interest like with loans and lines of credit.
Related: Beware of Small Business: There is a Generation-Sized Untapped Customer base
Cash advances from traders are great options to give businesses a much needed boost as they continue to grapple with the Covid-19 pandemic. The application process is quick and easy, and funds are available almost immediately, meaning urgent issues can be resolved and opportunities are seized. The funds can also be used to do payroll or hire new staff, increase marketing efforts, build infrastructure, and generally help a business grow and prosper.