Are There Restrictions on How A Merchant Cash Advance Can Be Used? [Complete with Usage Scenarios]

Generally, merchant cash advances are restricted in the sense that they must be used to grow your business, but that’s all. You can’t receive a merchant cash advance from a reputable provider and use the funds to buy your me-ma’s 70th birthday gift or that new home you’ve been eyeing. But the application of merchant cash advances is quite broad. Let’s look at a few possible scenarios on how a merchant cash advance can be used to take your business to the next level.

Interested in learning more about merchant cash advances? Check out our related article: What Is A Small Business Merchant Cash Advance?

Jayne’s Diner Wants to Expand

Let’s assume that Jayne’s Diner, a thriving establishment on Manhattan’s Upper East Side, is looking to expand. Having been in business for one year, it doesn’t have the historical financial documents necessary to obtain a loan. Jayne’s Diner is profitable, always packed – you just can’t get a seat there, especially during lunch and on the weekends, and has established notable roots within the Upper East Side community. Jayne, owner of Jayne’s Diner, would like to expand the diner by leasing a vacant storefront next door and transforming it into an extended dining area.

After meeting with the building manager, Jayne learns that if she signs a lease within the next 7 days, Jayne’s diner would be eligible for 2 free months, which would be a huge help as she will have to renovate the storefront to match the diner’s brand as well as purchase additional tables, chairs, etc… Upon reviewing her finances, Jayne determines that the diner doesn’t qualify for a loan, but she needs additional capital.

Jayne performs research and applies for a merchant cash advance the next day. Jayne provides all the information necessary and is provided with an advance of $150,000 the next day. She immediately uses her merchant cash advance to lease the storefront next door and purchase tables and chairs.

Tom’s Trucking Must Pay Bills

Tom Trucker, the owner of Tom’s Trucking, has recently determined that he wants to apply for a merchant cash advance to pay past due bills. Tom’s has always paid its bills on time, but Tom was sick for a few months not too long ago and this set the company back quite a bit. Tom’s is, for the most part, a healthy business. It has three big rigs on the road 322 days throughout the year and is run by both Tom and his wife, Mary.

Tom applies for a merchant cash advance and is provided with $55,000 in funding within a few days. He quickly uses $20,000 to pay past due bills and the remaining $35,000 to purchase an additional big rig for the company. He believes the return on investment that he’ll see with the fourth big rig will not only enable him to pay the advance back on time but also have money left over each day. Tom used the funds he received from the merchant cash advance in a manner that he thought would best serve his company.

Mary’s Muffins

Mary’s Muffins is a tiny hole-in-the-wall muffin shop located in Boise, ID. Before opening Mary’s Muffins, Mary became somewhat of a local celebrity when she baked muffins for her daughter’s PTA school charity event. Buying into the hype, Mary opened a little muffin shop and it has thrived ever since. Mary’s at the stage where she’s plateaued and needs to expand her operations if she wants to make it big time. Mary sets out to have Mary’s Muffins in the frozen dessert section of Grocer Gate, the local chain of grocers.

Although Mary’s Muffins has money in the bank and Mary has some savings stashed away, she’d prefer not to deplete the business of most of its funds or dip into her personal accounts. She planned on taking a week or so to perform research and consider her options but is so inspired while in the frozen dessert section of Grocer Gate later that evening, she immediately goes online and searches for a way to acquire the necessary funds.

She determines that the loan process is too lengthy but comes across an article discussing merchant cash advances. Unsure of whether a merchant cash advance is for her and the basic legitimacy of this alternative source of funding, Mary continues performing research until she feels comfortable applying for one. She completes her application, her information is verified, and she’s funded within two business days.

Merchant Cash Advances Offer Opportunities

Merchant cash advances provide you with the ability to both sustain your current business operations or engage in new ones. Whether you’re looking to pay your bills, like Tom, expand your current operations, like Jayne, or enter a new space entirely, like Mary, the working capital provided from receiving a merchant cash advance can help you take that next step. Another benefit of the merchant cash advance source of funding is that you are selling a percentage of your future receivables, not equity in your business. By selling a percentage of your future receivables and not an ownership stake in your business, you both remain in control of your business and can profit more in the long term than you would if you sold an equity stake.

Next Steps

Before deciding on whether a merchant cash advance is appropriate for your business, you should perform as much research as possible. Make sure you truly understand what a merchant cash advance is, how it works, and what each funder both offers and requires. It’s critical that you spend the time necessary familiarizing yourself before taking the next step and applying. Additionally, be sure to read each contract and seek clarification before signing and receiving funds.


10 Ways to Improve Employee Engagement in Small Businesses

Employee engagement directly impacts an organization’s turnover and retention rate. Low levels of employee engagement can cost an organization more than it costs to simply hire and onboard a replacement. From employee morale to customer service and beyond, employee turnover impacts an organization at all levels. It’s no wonder why organizations spend billions of dollars annually on employee turnover.

The more engaged employees are, the less likely they are to be dissatisfied and leave their employers. How do you keep employees engaged? Below is a list of ten easy-to-implement ways to engage your employees on a consistent basis.

Interested in employee engagement topics? Check out our related article: 3 Facts About Small Business Employee Turnover

  1. Encourage Creativity

Creativity serves two critical functions when it comes to employee engagement. First, employees who are encouraged to be creative and develop novel ideas and solutions to problems experienced within their jobs are more likely to feel valued by their employers. Employees feel valued more when their employers encourage creativity because it provides them with a meaningful voice and a megaphone within their organization. They are encouraged to contribute to the organization as a whole, no matter how small or large their actual assignment is, in a way that is meaningful to them.

Encouraging creativity within employees provides those employees with an extended license to be themselves. Oftentimes, employees are faced with boring procedures through which they must approach their daily activities. Although encouraging creativity won’t necessarily remove such formalities from employees’ daily lives, it’ll provide them with the opportunity to be themselves and contribute more meaningfully to their employers.

  1. Promote Positivity

Employees are consistently overworked and underappreciated by their employers. If they’re not overworked or underappreciated, they still might feel like they’re carrying the weight of their departments while their efforts go unnoticed. When this happens, employees are surely going to become gradually disengaged from their roles, which will cost their employers. Additionally, such disengagement will lead to a decrease in employee morale as others must step in to carry the weight that the now disgruntled employee once carried.

Promoting positivity within your organization costs very little and comes with a huge payoff. In fact, there are several benefits to promoting positivity. First, employee morale will improve. It’s human nature to mirror the feelings of those around them. Promoting positivity and happiness throughout your organization will lead to employees enjoying their workplaces more, also resulting in increased productivity. Second, customer service will improve. Increased employee morale will result in happier employees, which will, in turn, trickle down to your organization’s customers. Third, promoting positivity throughout your organization will result in lower employee turnover and higher retention.

  1. Recognize Employee Achievements

No matter what industry you’re in, human capital is the backbone of your organization. Your employees, whether you have many or few, are what keep your organization operational. Too often, employees make incredible achievements and their employers approach such achievements with the wrong mindset. Although employees are compensated by their employers to perform certain functions and achieve particular goals, such achievements should not go unnoticed. It is important to remember that employees are people and people need recognition. While it is unnecessary to break out the bright lights and trumpets when recognizing your employees’ achievements, it is unwise to overlook them. Although they’re compensated for their actions, employee morale begins to decline as more and more of their achievements are overlooked.

Recognizing employee achievements doesn’t require too much effort. The importance of recognition is in the act itself, not the form with which it is implemented. A simple meeting with an employee to recognize an achievement or a company-wide email can have the same impact on an employee’s morale. It doesn’t stop there, though. Recognizing employee achievements also improves morale within those employees who have not accomplished recognition-worthy achievements. It feeds into promoting positivity within the workplace and improves every part of the organization.

  1. Continuously Train Employees

Most employees aspire to grow and develop over time. Whether their motives are to be able to afford a better home one day, put their children through college, or change the world, they are valid and important. Employee development should be taken very seriously by organizations as it critically impacts many parts of an organization over time. Continuous employee training results in increased employee engagement and retention, reducing their employer’s overhead exponentially over time.

Ongoing training activities not only improve employees’ job performance, but also signal that the employer is invested in the success of its employees.

Too often employees are hired, onboarded, and left to fend for themselves. Their direct supervisors slowly overextend them with work that goes beyond their skills. In the beginning, it’s okay. Over time, however, the level of work beyond employees’ known skills becomes a burden and morale begins to decline. In addition to improving employee morale on an ongoing basis, ongoing training also helps to attract quality candidates when looking to onboard new employees.

  1. Engage in Team Activities

Team activities in the workplace help to build a sense of community within an organization. Whether your organization is made up of 5 people or 500 people, team activities enable employees to bond and grow with their colleagues in a manner that’s less formal than they would otherwise while they’re fulfilling the functions of their job. Team activities don’t have to be purely recreational. In fact, some of the best team activities can include several colleagues working together in a more relaxed manner with the objective of producing a piece of high-quality work for their employer.

  1. Implement Volunteering Initiatives

Often overlooked in smaller businesses, volunteering initiatives are an excellent way to improve employee engagement levels throughout your organization. People are generally good. However, not all good people have the time or are willing to find the time to volunteer for different causes they are passionate about. Studies have shown that employees are becoming more and more willing to leave an employer if the employer does not offer meaningful opportunities to give back.

Volunteering initiatives should be meaningful but don’t need to consume too much of your organization’s resources. Don’t implement a volunteer initiative to simply retain employees, that won’t work. The key here is to have employees engage in some meaningful form of giving that adds value to the intended beneficiaries of such efforts. Effective volunteer initiatives are generally done on the clock and together as a team.

  1. Add Plants

Plants improve office aesthetics, which often decrease employee morale. Research shows that offices with no plants exhibit productivity levels that are 15% lower than those that have a few simple houseplants in them. Plants add a lively burst of energy to the spaces within which they are located and increase employee morale and productivity, leading to increased engagement and reduced turnover rates. They offer wins all around.

  1. Give Employees Individual Attention

A critical mistake that many organizations make, especially small businesses, is failing to provide each employee with individual attention. Although employees are part of a team while they’re at work, each still has individual goals. While one employee is simply working to pay rent, another employee aspires to be a manager.

Employees have their own goals and identities, and it is critical for organizations to not only understand their unique identities, but also embrace them.

Providing employees with individual attention requires a bit of time and finesse, but proper execution can yield huge dividends for your organization. When providing individual attention, make sure it’s individual and about the employee specifically. Don’t approach providing individual attention in a group setting as it will reduce the impact of the attention given. Additionally, don’t focus exclusively on the individual within the context of the team on which the employee sits. This, too, will reduce how meaningful the attention is perceived. Focus on the employee as a person and how this employee can improve his or her career within your organization.

  1. Provide the Right Tools

There’s nothing worse for an employee than being tasked and not having the appropriate tools to do the job. Could you imagine cutting a tree with a Swiss army knife? It’s certainly possible, but it’ll take a painstaking number of hours and you’ll likely be frustrated along the way. This is what it’s like for an employee who’s tasked without the proper tools. This is especially the case when other members within their organization are relying on them for deliverables.

Not having the correct tools to perform the functions of one’s job leads to increased stress, anxiety, and decreased morale. In fact, morale can plummet due to an inability to perform a job well because of factors that are beyond the employee’s control. Providing employees with the right tools for their jobs increases productivity and engagement, resulting in increased morale and retention.

  1. Listen to Employees’ Concerns

Employees are the backbone of every organization. Oftentimes, employees express concerns that go unheard and unaddressed. They either don’t have a forum to speak or their supervisors don’t take the time to listen. Listening to employees’ concerns serves several important functions within an organization. First, and most importantly, it provides employees with a meaningful voice. As noted earlier, this is critical to employee engagement because employees are human and want to be heard. Second, it provides organizations with critical feedback on potentially larger issues within the organization. Third, it provides the organization with the opportunity to get ahead of potential liabilities while simultaneously improving employees’ experiences in the workplace.


3 Facts About Small Business Employee Turnover

Employee turnover is often overlooked in small businesses. The process of hiring and firing employees is viewed as a necessity, but turnover causes and effects are not looked at on a granular level. The reasoning behind why an employee departs is often not taken into deep consideration due to a perceived lack of time or resources, but very little thought is given to the amount of time and resources that will be gained by retaining employees longer.

This article begins by looking at the true costs of employee turnover and how excessive turnover can begin to destroy a small business. From there, we then dive into looking at what employees really want and how they approach getting it. We end with a look at why employees leave and what employers can do to improve their retention rates.

Interested in employee engagement topics? Check out our related article: 10 Ways to Improve Employee Engagement in Small Businesses

  1. True Cost of Employee Turnover

Employee turnover impacts every part of an organization, from team quality to overhead, and especially morale and customer service. Employee turnover is often thought of as an isolated incident. Employee X is no longer with the company, so we must replace employee X with employee Y. However, this is a wildly inaccurate way of viewing employee turnover. Businesses are made of interconnected webs of individuals, usually in teams, whose functions within the business rely on one another.

When one member of any team within a business departs, there are several costs that are associated with such departure. The most commonly recognized cost is advertising dollars spent to attract quality new replacement candidates. This includes online advertisements, career fairs, and other means through which the business attempts to attract replacements.

The second cost is onboarding and training. While it’s not commonly thought of as a cost because it’s a necessary function for the operation of the business, onboarding and training costs add up. In addition to this, there is a third cost that is closely related: employee inefficiency. The cost of employee inefficiency is exhibited every time a new employee joins a business and is highest when a more seasoned employee departs. Without proper preparation over longer periods, the teams on which the now-departed employees once sat are often burdened with carrying the weight of the former employees.

The fourth cost, which is also closely related, is employee morale. As employees are burdened with more work, they become overworked and employee morale begins to decline. As more and more members of the business depart, and it begins to look more like a revolving door, employee morale begins to plummet. Frequent turnover leaves employees uneasy and questioning their job security.

The fifth cost, which is incrementally reduced by each of the preceding four costs, is reduced customer satisfaction. Customer satisfaction is key in any business. After all, customers are the ones who ultimately pay the bills and provide the profits. As employees leave and replacements are brought in, productivity, product knowledge, and confidence begin to decline. Customers want information and they want it fast. Employee turnover can slow the information gathering and task execution process down to a snail’s pace.

The sixth cost, closely related to the fifth, is customer loyalty. Even the most loyal customers who have started experiencing deviations in the quality of the services they are receiving are likely to jump ship over time.

  1. What Employees Really Want

People agree to become employees for different reasons. One individual might join a business for self-motivated reasons while another takes a purely altruistic approach. Assuming everyone performs the job as agreed upon entering the business, the reasoning behind the decision to join doesn’t matter. What’s important is what these individuals want after joining the business.

First and foremost, employees want to know that they are valued members of the business. This doesn’t mean bright lights and trumpets are necessary but listening to employees and enabling them to have a unique voice is key.

Second, employees want to know that there’s room for growth within the company. Unless the individual is specifically looking for a short-term position to help bridge the gap between being unemployed and being employed at their next job, growth potential is important. Growth potential comes in many forms, but the most common two are additional responsibilities and increased wages. Enabling employees to grow within your business throughout their careers provides them with a sense of stability, resulting in increased engagement and reduced levels of employee turnover.

Third, employees want to work for a company that they can identify with and one that makes them proud. People are generally good and those who aren’t don’t go around telling others. Generally, employees want to work for an employer who has some sort of volunteer initiative implemented throughout the business. Employees like being provided with the opportunity to give back while doing it on the company’s dime. Volunteering together also enables colleagues to get to know and engage with each other in a less formal way.

  1. How to Retain More Employees

Employees leave for many different reasons. Some employees have found seemingly better opportunities, others feel unappreciated, and still, others don’t see growth opportunities within the company by which they are employed. No matter their reasons for leaving, employers can reduce their employee turnover rates by focusing on the areas outlined above. By giving employees individual voices, enabling them to grow within the company over time, and showing them that the company cares about giving back, employers will be able to retain their employees for longer periods of time.

Employees want to know that they’re not expendable. In a world where robotic process automation and skilled laborers are flooding the market, employees want to know that there is stability and security in their jobs. Focus on improving your employee engagement rates by implementing the advice mentioned throughout this article and you’ll notice a gradual decline in your turnover rates and an increase in your customer satisfaction and loyalty.


What Is A Small Business Merchant Cash Advance (MCA)?

A merchant cash advance is an upfront lump-sum payment for the purchase of a contractually specified percentage of a business’s future receivables. That’s a mouthful, so let’s break it down into simpler terms. As a business owner, you sell either goods or services. Each sale that you make is called a receivable. Sales that you expect to make in the future are referred to as ‘future receivables.’ A merchant cash advance is simply the purchase of some of your future receivables, which are really speculative investments for the funding provider, for payment now.

Is that really it? No, there’s more.

Merchant Cash Advances Are Speculative

For you as a business owner, merchant cash advances can provide the working capital necessary to pay your operational expenses, purchase new inventory, hire additional staff, or expand into new markets. For merchant cash advance providers focused on providing business owners like yourself such working capital, they’re speculative investments. Let’s say you approach a merchant cash advance provider, such as Knight Capital Funding, for working capital. This provider will ask you for several months’ business bank statements and a few other pieces of information to verify your banking information and identity and determine whether your business will likely be able to generate future receivables.

Providers of merchant cash advances come to this determination based on identifiable trends within the business’ past and industry.

What industry is the business in?

Is the business profitable?

Has the business experienced serious financial hardships?

Is the business over-leveraged?

After answering each of these questions and others, merchant cash advance providers determine whether the merchant will likely generate the future revenue and the purchased future receivables.

Merchant Cash Advances Use Factor Rates

Unlike percentages, which are commonly used for loans, factor rates are decimal figures that generally vary from provider to provider. Factor rates are merchant cash advance providers’ way of charging merchants for the risks associated with the merchants’ likelihood of generating the future receivables.

Merchant Cash Advances are Not Loans

It’s important to understand the distinction between a merchant cash advance and a loan. Merchant cash advances are not loans. The two are very different. As described above, a merchant cash advance is the acquisition of a contractually specified percentage of your future receivables in exchange for an upfront lump-sum payment. Merchant cash advance providers expect the funds to be remitted on a flexible schedule based on the amount of money remitted each day along the way, generally referred to as a ‘turn,’ along with a factor rate of x (e.g., 1.4) for administrative and other fees. Merchant cash advance remittances are generally made to the provider daily or weekly via an ACH withdrawal, with amounts varying based on the revenue generated by the business. The amount varies because merchant cash advance providers purchase a percentage of your receivables up to a specified dollar amount, not guaranteed remittances of $y daily.

Loans, on the other hand, are a bit different. In fact, loans are almost the opposite of merchant cash advances. The loan process usually begins with a lengthy look at both you as a merchant and as an individual. Loan officers require several detailed financial documents. For example, loans require you to have been in business for several years and rely heavily on your personal credit history. Once approved for a loan, you receive a specified amount of money for a set term with $y to be remitted to the loan issuer monthly. With a loan, you’re borrowing someone else’s money to achieve your goals. Loans, on their own, do not entitle the issuer to any percentage of your future receivables. Loans carry with them an absolute right of repayment.

What’s Better, Merchant Cash Advance or Loan?

It depends. There’s no correct answer to this question because it’s wholly subjective from situation to situation. The simple answer would be as follows: whichever source of funds best enables you to achieve your short-term goals without deviating from your long-term goals.

Let’s dig a bit deeper and see if we can come to a more definitive determination.

Merchant cash advances are great for business owners to obtain the cash they need in a quick and efficient manner. Some providers, Knight Capital Funding included, can provide small business owners with working capital within 24 hours. The speed with which small business owners can obtain large amounts of cash (Knight Capital Funding offers up to $250,000) makes it an attractive option for situations where a key piece of equipment breaks or a time-sensitive business opportunity requires immediate action. Loans, on the other hand, are good for small business owners who have both the documentation necessary to obtain the loan and the time to go through the loan process.

How do you come to a decision that’s right for you and your business?

Determining the best source for your business’ next cash infusion should be considered on a case-by-case basis. At each point, your business will likely have different needs and the options you consider should be determined on where your business is at that point in time. However, you should ask yourself the following questions:

First, start by writing down what you need the funds for and whether such expenses are necessary.

Second, ask yourself if your business meets the requirements to receive a loan. If not, a merchant cash advance or another source of alternative funding might be right for your business.

Third, determine whether your business will likely generate the purchased future receivables.

Fourth, research merchant cash advance providers and loan issuers.

Fifth, develop a list of questions and ask for clarification from provider and issuer customer support teams.

Sixth, apply for a merchant cash advance or loan with the provider or issuer you think can best meet your needs.

Seventh, spend the funds wisely.

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