According to McKinsey & Company, the US e-Commerce penetration experienced 10 years’ worth of growth in a matter of 3 months, replacing physical channels along the way. And all of this occurred during the height of the Coronavirus pandemic.
More business owners are turning to online channels to sell their wares. In fact, Shopify has reported that the number of stores launched on their platform grew by 71% in the second quarter of 2020, compared to the first quarter.
The unfortunate reality is that many new businesses will fail. The main reason is the lack of money management. A recent study cited that 82% of businesses failed due to cash flow problems.
Traditional Banks Miss The Mark For Small Businesses
Small businesses have a difficult time overcoming cash flow problems. Many times, they simply don’t have sufficient cash to overcome the inevitable or unexpected challenges such as supply chain disruptions, shipping costs, and even surcharges.
That is why small businesses must rely on outside sources of funding to overcome these challenges and even grow the business efficiently. Although some have turned to traditional banks, they drastically under-serve online businesses. Their underwriting processes are woefully outdated and are simply not tailored to meet the needs of entrepreneurs and eCommerce businesses.
MCA Financing
As a result of these traditional financial institutions not meeting the needs of these small businesses, many have turned to alternative financing solutions that cater to online businesses. This way, they get access to the funds they need, when they need them, in order to survive the increasingly competitive retail environment.
The e-Commerce funding model that keeps drawing the interest of merchants is the Merchant Cash Advance (MCA).
The merchant cash advance is not a loan, but a financial product where a lender buys a percentage of your company’s future credit card sales.
The most important benefit that an MCA offers is that a small business can get access to capital quickly, without dealing with much bureaucracy. These funds can be critical to covering short-term expenses such as purchasing inventory or replacing equipment.
This is also a perfect option for those small business owners who don’t qualify for traditional bank funding. This can be due to being a new business and not having enough assets to use as collateral or having a low credit score.
How To Qualify For MCA Financing
MCAs are suitable for just about any business, regardless of the size. There just needs to be regular credit card transactions. The daily credit card sales need to be steady enough to guarantee repayment.
The amount required will depend on the lender. One could require $1,000 in monthly credit card transactions while another could ask for $6,000.
The general guidelines in order to qualify for MCA financing are as follows:
- Need to be in business for at least 1 year
- You must at least $50,000 in annual revenue
- You must maintain a credit score of 500 or higher
Again, these are just general guidelines as some lenders may have more lenient requirements. Each lender awards acceptance on a case-by-case basis so it is best to consult with a lender to determine whether you would qualify.
Choose The Best Funding Option For Your Business
Every business has its own unique needs. The best funding option is the one that most adequately addresses the following questions how much cash you need when you need it, what you are actually approved for, and what your short and long-term goals are.
From here, you can easily determine which loan provider will best fit your business.