You’d think success would be sweet for Crystal White, owner of Everythingbirth.com. The burgeoning business, which specializes in supplying cloth diapers and birth supplies to consumers and midwives, has been around for some ten years. In fact, thanks to a weak economy, Everythingbirth’s sales have grown 300% as young parents, eager to cut down on the spiraling cost of disposable diapers, have called the Maine-based company.
But as White explained in a recent interview on National Public Radio’s “Morning Edition,” the recession has helped her business, but it’s also made it harder to expand. After approaching ten banks, including her own, she was finally told “We don’t take risks on small businesses.”
Indeed, a lack of capital and/or access to capital inhibits growth, reduces the number of employees a business owner can hire, inhibits sales growth, makes it difficult (impossible) to increase inventory to meet demand, reduces ability to provide benefits to employees, and may force closures of stores or branches. For Everythingbirth, the cushion would allow White to offer benefits to employees, hire more staff and move from her garage to a larger location.
White is not the only small business owner finding it hard to invest in her own future. A recent press release issued by the National Small Business Association (NSBA) reported some 36 percent of those surveyed reported an inability to garner adequate capital. This number was higher among the smallest businesses.
Yet the fact remains that small businesses, however they struggle for capital, are looking to grow. In 2010, when we looked at how business owners would use a Merchant Cash Advance, we found slightly more than half (53%) needed Business Working Capital. The number increased fractionally in 2011 to 54%. The second-largest use (37%) for an MCA was to fuel growth initiatives, including purchases of inventory, equipment, remodeling, advertising, expansion and other forward-thinking investments. Only 10% (11% in first quarter 2011) needed cash for stabilizing, emergencies and “other” uses.
Comparison of MCA Surveys
|Business Working Capital||53%||54%|
|Stabilizing, emergency or “other”||10%||11%|
Our respondents are not alone. In 2008, the NSBA surveyed small and mid-sized businesses. The question: “If you were able to obtain capital, what are the first three actions you would take?” yielded responses that spoke to business owners’ desire (and need) to invest in growth. These included 36% who would invest in advertising and 30% who want to hire additional employees. (For a detailed look at this survey, visit http://www.merchantcashadvanceinfo.com/2008/08/how-would-you-spend-it.html
The way a Merchant Cash Advance works, your business gets the lump sum of capital needed right away by selling a fixed amount of future credit card receivables. Spend that on whatever your business needs. Then over time, the obligation is handled through your credit card processor forwarding a fixed percentage of your credit card sales to the Merchant Cash Advance provider. (Learn more about how a Merchant Cash Advance works.)
While a Merchant Cash Advance is not the answer to all your business’ finance needs, consider using one to invest in your company’s growth, hire the employees that can help you optimize an influx of new orders and build out space to grow even more.