Access to operating capital remains an ongoing challenge for some retailers, which are still facing a difficult time when it comes to securing a loan. The problem is particularly acute for small and medium-sized businesses: Among U.S. small business owners, 90% believe the availability of credit for small businesses is a problem, and 61% agree it’s harder to get a loan now than it was four years ago, according to a recent study by the American Sustainable Business Council, Small Business Majority and Main Street Alliance.
As a result, some retailers are looking beyond traditional finance options and seeking out alternative lending solutions. One such option is merchant cash advance services, which can provide retailers with the fast capital needed for renovations, inventory, expansion and other needs. Also known as business cash advances, the growing popularity of merchant cash advance services is driven by relatively low personal credit requirements and quick process of obtaining the cash advance.
“Merchant cash advance services supply retailers with working capital via a relatively fast and easy process, and are tailored specifically for businesses that accept credit cards. The firm purchases the future credit card revenues of the retailer at a discount,” explained Seth Broman, VP business development for New York City-based Merchant Cash and Capital, which provides working capital to restaurant, retail and services businesses.
The amount of funding the retailer is eligible to receive is based on its average monthly credit and debit card processing volumes, and most businesses can typically qualify for one to two times their average monthly processing volume, according to Broman. The advance is paid back by remitting a percentage of the business’ daily credit card processing receipts to the merchant cash advance provider.
“An advance can be paid back between six and 12 months,” Broman said. “A typical advance can be structured in three to five days, allowing the retailer access to the capital needed almost immediately.”
To be approved, the retailer must be open for at least six months, accept credit cards and process an average of at least $5,000 per month in credit card sales. Additionally, retailers are not required to pledge collateral or post personal guarantees as they often are with traditional commercial lending vehicles.
“Since the advance is paid back with a fixed percentage of future credit card sales, there are no large monthly payments bearing down on the business owner, which is especially helpful for seasonal businesses,” Broman said.
Retail operator Samuel Placeres, the owner of Seventh Avenue Stores, an East Coast-based women’s apparel chain with 11 stores, is among those retailers to utilize alternative financing. Having been in operation for just over a year, Placeres was focused on increasing profits of his fledgling chain. He wanted to open a location in New Hampshire but lacked the extra revenue needed to purchase all of the required inventory.
At Merchant Cash and Capital, Placeres was able to secure a $75,000 advance that enabled him to stock enough inventory to open the new store on time.
“You can’t open a new store without inventory, and Merchant Cash and Capital was able to provide the quick and easy financing I needed to overcome my financial setback,” Placeres said. “It was a great service and I plan on using it again in the future.”