Is a Merchant Cash Advance the Right Option for My Travel Agency?
September 12, 2019
September 12, 2019
A merchant cash advance is one of the most convenient forms of business financing available for small businesses that bring in income primarily from credit card sales. Since travel agencies fall into this category, they can be ideal candidates for merchant cash advance funding.
Merchant cash advances work differently than traditional business loans in that you, the merchant, receive the advance as a lump sum of cash in your bank account, and then repay it as a percentage of your credit card sales or other business receipts. The amount you borrow, the length of the term, and the factor rate (which is the cost of capital as there is no interest rate) are all determined by the MCA provider.
Not to get too negative here, but as a small business owner in the tourism industry, you already know that your cash flow is up against some big challenges:
This is before you throw in the usual small business challenges! All of the above put together mean that it’s very likely that over the course of your travel agency’s lifetime, you will need to seek out business funding of some sort.
Maybe at the end of every season, your business needs some short-term working capital to get you through the winter (or summer). Maybe your biggest corporate client canceled their annual retreat, and you don’t have time to wait for a traditional bank loan since you need to make a big marketing push now on the inventory they just vacated. Maybe you have bad credit, and a merchant cash advance is your best option. These are just a few reasons that some business owners gravitate toward this type of funding.
This last point is very important. Because merchant cash advances are not loans — they are a cash advance on anticipated future income — they are not governed by the same laws as traditional loans, lines of credit, business credit cards, and other sorts of business financing. While the best MCA providers can save your bacon, there are bad actors out there that can get you stuck in a neverending, increasing cycle of debt, potentially costing you the travel agency you’ve poured your sweat into.