How To Use an MCA for Operational Capital

How To Use an MCA for Operational Capital

The key to effective and sustainable cash flow management is finding a single strategic goal for your processes, so they pull together. One of the most common strategies used by companies to set clear budget expectations and make meeting overhead obligations easy is the use of an operational capital budget financed with something like a merchant cash advance.

Financing an Operational Budget

Businesses choose different financial products to meet this need, including loans based on real estate assets, equipment, and even business assets. The goal is to get a lump sum that can be budgeted for a specific time frame. The company then uses that money for expenses like payroll, utilities, and supplies while dedicating incoming receipts to paying off the debt as early as possible. If the debt is paid down before the sum of operational capital is exhausted. The remaining income can be distributed as profits or saved as reserve cash because the next budget will also be funded out of the merchant cash advance or asset loan chosen.

Why Use Business Assets for Cash Management?

Large corporations with many real estate investments sometimes choose to fund operational budgets for multiple years at once with a real estate asset loan. For most small businesses, that kind of long-term planning is as impractical as it is impossible. Using asset-based products like MCAs means being able to get the advantages of operational budget financing on the scale of weeks or months instead of years, and that allows you to be nimble when the opportunity presents itself.

How To Use a Merchant Cash Advance for Operational Funds

The application process for an MCA is straightforward when compared to something like a real estate loan. Typically, lenders need to see proof of your income, both total receipts and those that come through the merchant account on their own. This allows them to weigh risk factors like whether you are dependent on the merchant account income to meet your overhead obligations. They also usually request basic identifying information, proof of insurance, and tax ID.

Since an MCA is paid off with a percentage of your merchant account earnings, the best way to use it is to take out an advance just before something like a seasonal demand surge. This allows you to be ready with stock, personnel, and a freshly redecorated operating space so you can make a profit quickly when things get busy, paying back the merchant cash advance and pushing your company into profits.