Addressing the Debacle of Providing Funding For Merchants

One thing about small businesses that cannot be overlooked is that they bring innovative ideas to the real economy. There has never been any doubt that small and medium-sized businesses are important for the future of the economy. Because of this, merchant cash advance providers rose to the challenge after the 2008 financial crisis when institutional lenders declined lending cash to the majority of small businesses and instead chose to favor lending to big businesses.

Since that time and the since the enactment of the Dodd-Frank-Wall Street Reform act, the demand for funding for merchants through MCA has significantly increased. Because merchant cash advance lenders do not operate under some regulatory microscope, they have been able to respond adequately to the needs of small businesses.

So-Called Pitfalls of Merchant Cash Advance

Even though providing funding for merchants through merchant cash advance has enabled businesses to be repositioned in the face of changing market conditions, skeptics are quick to draw attention to what they regard as the pitfalls of merchant funding. It has often be repeated that the fact that merchants who have obtained a cash advance have to remit a portion of their daily credit card sales to the merchant lender could seriously affect cash flow.  

Why the Issue of cash flow strain is a minor one after all

This might, at first glance, appear to be true. But if one considers that funding for merchants is only approved by merchant cash advance providers if it has been determined that business can comfortably pay the agreed sum without undergoing much stress. Meanwhile, the percentage of the daily credit sales that is requested is done with consideration for the peculiarities of the business. That said it should be obvious that the first objection to merchant cash advance is tune with the reality on the ground. The other objection has to do with cost and that one again is often blow out of proportion.

When Is the Best Time to Obtain a Merchant Cash Advance?

Cash advance funding for merchants might be the most preferred option certain conditions but not all as we shall see. Because of the pricing ratio that is prevalent in the merchant cash advance industry, business owners must make sure that an MCA is only obtained when the situation calls for it and when its cost is justified. One such condition where an MCA is appropriate is when a business is looking to take advantage of an unexpected business opportunity. If the profit that can be obtained from that window of opportunity is significantly higher than the cost of an MCA, then it should be a good option.

Businesses that are experiencing rapid growth are justified in seeking an advance

It could also be that a business is experiencing rapid growth and is finding it difficult to manage.  Funding for merchants from merchant cash advance providers can be sought by such rapidly growing businesses because of the high demand for money which comes with rapid growth. Money at that stage could be needed for renovation, construction, purchasing new equipment, or whatever will be needed for the business to cope with the rapid growth. A merchant cash advance can also be obtained when a business is trying to cover for an unforeseen event that could have a severe impact on the business if is not immediately tackled.

When obtaining merchant cash advance is not a good idea

The same way there are situations when providing funding for merchants from merchant cash advance providers is a good idea, there are also times when a merchant cash advance might not be justified. It is those businesses that use merchant loans when there is no actual need for it that often end up complaining bitterly about merchant loans.

To avoid being in that category a business should realize that merchant loans cannot be used to set up emergency funds. It is probably something a business line of credit that should serve such purpose.  A merchant cash advance is meant to be put to immediate use as soon as it is obtained. It does not have to be stressed that making frivolous purchases that do not increase the revenue of a business is a bad use of MCA funding for merchants.

What do merchant lenders require before issuing a business with an advance?

Unlike conventional lenders, merchant cash advance lenders do not require collateral or personal guarantees before an advance can be issued. They also do not require rigorous documentation before providing funding for merchants. However, there are a few basic requirements that a business has to meet before it can be issued with an advance. The first is that the business must accept credit card payments. The second most important criterion is that it must have a physical location. The business must show proof of ownership of business location, but if the place is rented proof of this must be provided. There are of course other minor requirements, but they are all minor and can be met by the majority of businesses.


Merchant cash advance lenders have been successful in providing funding for merchants over the years. The main reason small businesses continue to go back to merchant cash advance lenders after first-time use is the satisfaction they obtain. Businesses in need of funding under emergency conditions have time and again been rescued by merchant cash advance providers.

No one can dispute the fact that traditional financing institutions are not equipped to meet the challenges of small businesses regarding providing funds almost at the instant it is needed.

That businesses can obtain funding without bearing any risk is something that could not have been imagined before the emergence of merchant cash advance. As of now, almost every small business is aware of the fact that there is almost a hundred percent chance of any request for funding for merchants to be approved.  This is the reason merchant cash advance lenders have been successful in the past and continued to be.

By | 2018-05-07T12:16:17+00:00 May 10th, 2018|Business Loan|