Your business is growing and sales are increasing every day. Then you find yourself with a financial setback. You're facing a cash flow crisis and you don't know how you're going to recover from it. Without adequate capital, your business won't be able to grow.
You won't be able to fulfill the orders that your customers placed. Thirty-five percent of businesses don't have the capital they need to expand operations, according to the National Small Business Association's 2017 Mid-Year Economic Report. How can you get the capital that you need? Here are six ways to help fund your business purchases with an MCC code.
Most businesses use this type of business financing. Trade credit is when you borrow inventory or supplies at net 30, net 60, or net 90 days. It has become one of the most popular tools for supporting your business's financial growth. That's because having a designated period of time to pay back your finances can help your cash flow.
It can help you find vendors that will allow you to settle your balance, instead of paying the balance in full. If you make purchases through this option, you have 60 days or more to pay. In the meantime, the suppliers get paid immediately.
Business Credit Cards
If you need money faster, then you consider a business credit card. According to the Small Business Administration, business credit cards have become one of the top three ways business owners pay for their purchases. Most of them use this option for short-term financing. When you get a business credit card, there's no application process or wait for approval.
You also have the option of financing your purchases with your credit card or having a cash advance. Business credit cards come with interest rates of 14.16% which can make this an expensive financing option – especially if you miss monthly payments or can't pay off the balance in full.
Business Line of Credit
A business line of credit involves a lengthy application process. Once approved, you'll receive a long list of advantages such as a working source of capital. You won't have to repay the borrowed money until you have a line of credit. For example, if you receive a line of credit for $25,000 in January and only use $15,000 in June, then you won't have to pay it back until June.
You only pay back what you borrowed. The line of credit increases until it's back where you started. It may sound too good to be true but it isn't. However, your business needs a good track record and a great credit score in order to qualify for a business line of credit.
Merchant Cash Advance Financing
If your business processes a lot of credit card sales then you should look into merchant cash advance (MCA) financing. This option allows you to take out a cash advance in regards to your business's credit card sales. The lender will take a percentage of your credit card sales until the entire cash advance and fees are paid off. The great thing about this option is that no collateral is necessary to get started.
If credit card sales are low, your payments will stay low as well. Keep in mind that merchant cash advances do add up quickly.
Invoice Factoring or Financing
Invoice factoring is a process when a factor purchases your business's invoices for a percentage of the face value. The factor will take control of your invoices and then give you the remaining face value, sans the fees. While it's one of the fastest ways to receive money, you won't get the entire amount that you're owed. Having a factor take over your finances can cause confusion for your customers.
On the flip side, invoice financing gives you the full face value of your financing, sans the flat fee. With this option, you have control of your invoices, so your customers will never get confused. If you're approved, you'll receive the money right away and have 12 months to pay it back, which gives you more time than the other options on this list.