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Businesses across the country are emerging from the brunt of the lingering Covid-19 pandemic with new and ever-changing needs – and surprisingly few financing options arise to meet them. Traditional bank loans, lines of credit and other resources are insufficient, and it is the entrepreneurs who lack them.
The events of 2020 have indiscriminately forced companies of all sizes to be even more agile and adaptive. New exterior structures, safety equipment to meet regulations, increased e-commerce – all of this means that business owners now have days, not months, to adapt. Changing directives, labor shortages and structural changes all require rapid decision-making and funds quick. The problem is that, for most businesses, access to quick and easy capital simply does not exist.
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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 expenses make it difficult to save – and the Covid-19 pandemic has really shown us how small businesses in the country are. The majority of businesses with monthly expenses of $10,000 only had enough cash on hand to survive for two weeks when the pandemic hit and the shutdowns began. And that figure refers to their standard monthly expenses, not those 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. Loans and lines of credit from major banks are difficult to obtain and come with a mountain of paperwork. They often require 24 months of profit – a tough question at the start of a business’s life – even if it is heading for success. Lines of credit could be an option, provided 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 PPP and RRF, have recently ended. And the data shows that businesses in communities of color have been the last to access these types of loans due to their greater likelihood of being unbanked or underbanked. Worse still, these loans are not easy to understand for a layman, and their applications can be labyrinthine, reducing the chances of approval.
Restaurants are a perfect example of the trap in which businesses are caught. Many hotel workers have changed careers during the pandemic, and establishments are now severely understaffed. To attract workers and fight turnover, they offer higher wages, better benefits and hiring bonuses, all at the expense of the bottom line. But they cannot use their full capacity to make profits without a full staff. They need a capital injection with a high chance of approval to drive hiring, increase capacity and ultimately maximize profits.
Related: A post-pandemic survival guide for restaurants
Merchant Cash Advances are an agile and accessible solution
Homeowners have never had time to waste, and now they have less than ever. Businesses need a quick and easy way to raise capital that doesn’t require months and months of steady earnings so they can pursue new opportunities that will increase long-term growth. Merchant cash advances (MCAs) are a financing solution that can meet these needs – only a few months of profit is needed, some have a quick online application, and you can receive money as early as the same day or the the following day.
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, repairing – whatever they need to grow. With an MCA, a business owner has complete control over how they use their funds.
Essentially, a merchant cash advance lender buys a portion of a business’s future sales and advances the money. The advance is then repaid at a factor rate of approximately 1.2 to 1.5 – there is no compound interest as with loans and lines of credit.
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Merchant cash advances are great options to give businesses a much-needed boost as they continue to deal with the Covid-19 pandemic. The application process is quick and easy, and funds are available almost immediately, which means pressing issues can be resolved and opportunities seized. Funds can also be used to payroll or hire new employees, increase marketing efforts, build infrastructure, and generally help a business grow and prosper.