In the era of COVID-19, small and even medium-sized businesses are struggling to make ends meet. Cash flows have dwindled, leaving many business owners with few options. The shrinking economy has caused layoffs, closures, and general unrest among businesses and consumers alike. Will economic reform revitalize the economy going forward? Do vaccines hold the key to ending the COVID-19 pandemic and letting businesses get back to normal?
As of yet, there are no clear answers to these questions. However, it is abundantly clear that small businesses are hurting. Business owners need cash to re-energize their cash flow and keep their businesses running smoothly through these difficult times. Two of the common options that small businesses in need of a short-term cash injection are: a merchant cash advance or payroll funding loan.
This begs a few important questions. For example, what is a merchant cash advance? What is a payroll funding loan? Moreover, merchant cash advance vs. payroll funding: which is the best solution for your business? In the following guide, we will answer all of these questions and more. Read on to learn the benefits, drawbacks, and differences between merchant cash advance vs. payroll funding!
What Is A Merchant Cash Advance?
A merchant cash advance (also known as a business cash advance) is aptly named, as it is a lump sum of funds for merchants that sell products or services. An MCA loan is a form of short-term business funding that gives businesses more freedom to make micro-loan payments on a weekly or even daily basis. The provider or lender of an MCA loan is repaid a small sum of the loan whenever the merchant (the borrower) makes a sale. Generally, the loan’s provider works with a business to estimate future sales and agree on a percentage of sales that works for both parties.
When searching for MCA financing, it is important to remember that loans must be paid back within a set amount of time, regardless of how many sales your business makes. This means that you will need to pay back the loan in full – plus interest – according to the stipulations of your MCA loan contract. It also means that you will have to deduct a percentage of every sale to help pay back the loan.
How Merchant Cash Advances Work
Merchant loans provide business working capital, just like most standard business loans, though the way in which you pay will vary. For example, once the loan has been finalized, you will receive a lump sum according to the loan contract. Starting on a predetermined date, a set percentage of all your business’ debit and credit card sales will be deducted from your accounts. These payments go directly toward the principal loan and any accumulated interest.
There are various merchant cash advance companies that offer short-term MCA loans to eligible businesses. However, interest rates and loan terms will vary. Be sure to do your research payday loans South Dakota before taking out merchant loans with any provider, as debt can quickly accumulate with a merchant cash advance loan.
What Is A Payroll Funding Company?
A payroll funding company is essentially a lender that can extend lines of credit to businesses in need of cash to make payroll. This ensures that you can pay your staff on time while you wait for cash flow to free up. Funding payroll in this way can ensure that your business maintains its staff without severely reducing cash flow.
Providing payroll on time is vital for building a successful, well-run business. It’s one thing for your business to wait on client payments, but it’s another thing entirely for your employees to wait on their paycheck. Rather than trying to work through a payroll or staffing disaster, consider looking to a payroll funding company for payroll financing solutions that will meet your needs.
