Merchant Cash Advances: An Ideal Financing Solution for Seasonal Businesses

Is your business the busiest in the summer months and winter is slowest and you are unable to get traditional financing due to the volatility of your revenues? How about if it’s busier in winter than summer? Seasonal businesses have a unique set of challenges when it comes to financing. They require quick and flexible options to manage their fluctuating cash flow. Merchant cash advances (MCAs) provide exactly that, making them a popular choice for seasonal businesses.

What is a Merchant Cash Advance?

A merchant cash advance is a type of financing that provides a lump sum of cash to a business in exchange for a portion of their future credit card sales. The business repays the advance through a specified percentage of their daily credit card transactions, also known as the split.

Why MCAs are Ideal for Seasonal Businesses

Quick Access to Funds and Little Documentation: Seasonal businesses often have urgent funding needs, such as covering unexpected expenses or investing in promotions. MCAs offer fast access to funds, with some providers capable of delivering the funds in just 24 hours, and require little documentation compared to big banks, which can make the process faster.

Flexible Repayment Terms: 

The repayment terms for MCAs are based on the daily credit card sales of the business, allowing them to only repay the advance when they have the funds available. This can alleviate the stress of regular repayments during off-peak seasons. For example, if a business is advanced $10,000 with a repayment split of 20%, they would repay $2,000 for every $10,000 in credit card sales. This means that if your revenues dip below $5,000 then the repayment can not be more than $1,000 for that month. Best part is that the repayment split comes directly from the processor, so the batch you receive is net to you so you don’t have to worry about fixed payments coming from your business bank account.

No Collateral Required: 

Unlike traditional loans, MCAs do not require collateral, making them accessible to businesses without assets to secure a loan. Banks are often risk-averse and require collateral, which can encumber assets, but with MCAs, businesses can secure funding without putting their assets at risk.

Bad Credit Not an Obstacle: 

Seasonal businesses can struggle with maintaining a high credit score, making it challenging to obtain financing from banks. MCAs have less stringent credit requirements, allowing businesses with poor credit, tax liens, discharged bankruptcies, or less-than-perfect credit to still access funding. We don’t judge a business owner’s past and we understand that bad credit doesn’t mean bad business.

Unrestricted Use of Funds: 

MCAs provide unrestricted funds, which means that seasonal businesses can use the financing for any purpose, such as investing in seasonal promotions, covering unexpected expenses, or expanding the business. For instance, a seasonal ice cream shop can use the funds to purchase additional equipment, upgrade their store’s interior, or pay for additional staff during the peak season. Another example is a seasonal clothing store that can use the funds to purchase new inventory for the upcoming season.

No Personal Guarantee Required: 

MCAs often do not require a personal guarantee, which means that the business owner’s personal assets are not at risk. Additionally, since this is business financing, it does not report on the business owner’s personal credit, allowing them to maintain their personal credit score. This is a big advantage compared to traditional loans, where a personal guarantee is often required, and the loan reports on the personal credit of the business owner.

Qualifying for a Merchant Cash Advance:

To qualify for an MCA, a business must have a a business bank account, show revenues for at least 6 months and have monthly credit card sales volume of $10,000 with a processor that allows a credit card split. This means that the business must have a steady stream of credit card sales to be eligible for an MCA.

If a business’s credit card processor, such as Square, does not allow credit card splits, they can still qualify for an MCA by switching to a processing account that allows it. Our company can offer a processing account with matching cost at or better than their current processor. This allows the business to secure an MCA and have the flexibility they need to succeed during their busy seasons.

The bottom Line:

Merchant cash advances are an ideal financing solution for seasonal businesses, offering quick and flexible funding options, with no collateral required and relaxed credit requirements. With the ability to use the funds for any purpose, seasonal businesses can secure the financing they need to achieve their goals and succeed during their busy seasons.