Merchant and Business Cash Advances
I do not know about you, but I always prefer grabbing coffee from a local coffee shop over Starbucks; or buying a sandwich from a local sandwich shop instead of Subway – I guess I just prefer to support small, local businesses no matter what industry they classify as. But I am not the only one jumping onto that bandwagon. Consumers today are consistently choosing local small businesses over commercial big businesses. People today want locally made products, local brands at independent small stores, locally produced food, and anything else you can think of that can be produced from a small business. This “trend” of choosing local over big business, as many people call it, is no longer a trend, but a way of life that has never been seen before in American culture.
While small businesses tend to serve as the foundation for many communities, small businesses are also the most important source of employment and economic activity in the United States today. Many people overlook the role of small businesses, but one should never underestimate the power of entrepreneurs and innovators across the small business industry spectrum. The major impact of the original small businesses is often forgotten, which is pretty remarkable considering the United States was founded upon people and families with entrepreneurial spirits and the desire to work hard and profit from their business.
Small Business Trends and Statistics
According to the United States Small Business Administration, there are 28.8 million small businesses, which equates to 99.7 percent of all total businesses in the United States. Out of those 28.8 million small businesses, only 20 percent actually hire employees, but yet, 63 percent of all new jobs in the United States were created through those small businesses – and these numbers are only continuing to grow each year. Not only have these important small businesses created multiple job opportunities for American’s, they also play a vital role in exporting goods to other nations. In 2013, 304,223 companies exported goods; 297,343, or 97.7 percent, of all of these companies were small businesses; this lead to 33.6 percent of the United States total known export value being generated from small businesses. In conjunction with all of these mind blowing statistics, thanks to small businesses across the country, there has been a 38.1 percent increase in minority ownership of small businesses, as well as an increase in women owned businesses. With so many thriving small businesses, it should come as no surprise that small businesses also pay a significant portion of United States workers’ paychecks; small businesses pay out 44 percent of the United States payroll annually to their employees.
Another current trend that is helping small businesses thrive today is the launch of Goldman Sachs 10,000 Small Businesses initiative. Goldman Sachs investment firm and its foundation have taken an integrated approach in order to help small businesses around the country create more jobs and economic opportunity. Many programs are launched regularly to help start-ups and aspiring entrepreneurs, but this program is centered around providing small business owners with business education classes, financial capital, and support services to help take their already established small business to the next level. Not only is Goldman Sachs focusing on helping enhance small businesses across the country to help create a thriving economy, there are also placing an emphasis on diversity and businesses that are representatives of their communities.
When Would a Small Business Need a Business Cash Advance?
- Payroll is a necessity for most small businesses today, but sometimes covering this unavoidable expense can be difficult, whether it is due to a slow sales period or an unexpected emergency situation, there are many business cash advance possibilities that can help cover payroll costs. As mentioned in other posts, when business is slow, not covering payroll costs is the absolute last thing any small business owner should do – if a small business owner cannot facilitate an environment where the employees are held in high regards, then they will not produce effective work.
- Tax Liens, or needing financing to cover taxes to avoid tax liens, is another use for a business cash advance. Many times, small businesses hit rough patches or slow times. While it is understandable that some seasons are slower than others, the Internal Revenue Service will still issue a tax lien on a small business owners property if there are taxes owed. Emergency situations like these are the number one reason for considering a business cash advance.
- Expansion is always an exciting topic for a small business owner that is doing well, but having enough up front capital to cover an expansion can be difficult, even if everything else is in order and ready for expansion. That does not have to deter a small business owner from stopping their business expansion though; using a business cash advance can provide quick financing to help continue the expansion process.
- Inventory is a priority for many small business owners. Sometimes small business owners need to stock up on inventory before a major peak season, or there is an opportunity offered for a once in a lifetime deal on a particular product that sells very well; when considering the variety of options available to a small business owner for inventory needs, financing through business cash advances are always an option.
- New equipment is not high up on the priority list for every small business owner, but when reviewing the overwhelmingly significant impact that technology has had on every single industry sector in the United States, there will always be a time when a small business owner needs a new piece of equipment. For many companies, this could be new Point of Sale Systems or other technological systems that will make business more efficient. For other small businesses, new equipment can be fitness equipment, production equipment, and so much more. No matter what the type of equipment needed is for a small business, there is always business cash advance options to help cover expensive up front fees.
- Renovations are key to staying up to date and trendy for many small businesses such as tattoo shops, retail clothing shops, and even business offices! In a society dominated by first impressions, making sure that the store front for a small business is relevant and engaging to the desired customer base is essential. While not all renovation that can be done is overly expensive, sometimes situations arise that warrant the need for additional funding to facilitate and complete a much needed change; reviewing the business cash advance options available to small businesses is always a possibility.
- Purchasing real estate is not a cost that every small business owner will need to worry about, but for some industries, such as wholesale distribution, having additional warehouse and storage space is vital to running a productive and successful small business. Even though many small business owners typically rent or lease space, if a small business is looking to grow, purchasing real estate with a business cash advance can be an option.
- Marketing and social media is unavoidable in today’s society. Consumers are heavily reliant on doing first hand research of small businesses; they look at social media presences, customer reviews, and reliability of a business all before deciding to actually visit or purchase an item or service from a small business. Allocating funding to marketing campaigns, social media management (whether through current employees or third party marketing companies), and a creative, top of the line website is essential in creating a thriving small business. Business cash advances can help cover these costs.
ACH Cash Advance
A business cash advance (or sometimes called an ACH cash advance) is the sale of future receivables by a small business to a funding company that will provide upfront cash for the receivables at the discount. What seperates an ACH loan from a MCA loan is the fact that the financing is based on the bank account cash-flow. The MCA company will analyze the small business’s bank account statements for total amount deposited into the bank accounts, the number of deposits, average daily balances and check for insufficient funds and/or bounced checks. After analyzing the statements, the lender will then figure out how much the merchant can handle in daily payments, and then multiply that daily amount by a term (each lender is different, in that some offer very short terms — 6 months — while others offer longer term cash advances — 24 months. Ach loans are also used to consolidate and or refinance other cash advances.
- Factor Rates: 1.16 – 1.50
- Terms: 3 – 24 months
MCA Cash Advance
Whereas a business cash advance is based on the cash-flow exhibited in a business’s bank account, a merchant cash advance uses a merchants credit card processing statements to determine short term financing. A merchant cash advance is also the sale of a company’s future receivables, but the payback happens through the factoring of the merchant credit card processing accounts. Each day, the merchant funding company will take a percentage of the merchant’s deposits. The daily payment is not fixed, in that if you have less sales during the day, the funding company will take less of a total dollar amount (unlike ACH loans which have a fixed daily amount).
- Factor Rates: 1.16 – 1.50
- Terms: 3 – 24 months