Is a Merchant Cash Advance the Right Option for My Travel Agency?

Disclaimer: Information in the merchant cash advance articles is provided for general information only, does not constitute financial advice, and does not necessarily describe Biz2Credit commercial financing products. In fact, information in the merchant cash advance articles often covers financial products that Biz2Credit does not currently offer.

A merchant cash advance (MCA) is a convenient form of business financing for small businesses that earn income from credit card sales. This includes travel agencies. Whether your agency focuses on cruises, trips to Orlando, Florida, or European vacations, MCAs for travel agencies can be a great way to stay solvent through peaks and valleys.

Merchant cash advances work differently than traditional business loans. In an MCA, a business receives a lump sum of cash in its bank account and then repays it as a percentage of its future credit card sales or other business receipts. The MCA provider determines 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).

In this article:

• Learn why a travel agency might benefit from a MCA.
• Explore the merchant cash advance pros and cons.
• Discover some alternatives to get quick funding for travel agencies.

Why A Travel Agency Might Benefit From a Merchant Cash Advance

As a small business owner in the tourism industry, you already know that your cash flow is up against some big challenges, including:

• Seasonality
• Domestic and international crises
• The high rate of cancellations and credit card (or debit card) chargebacks

This is before you throw in the usual small business challenges! At the end of every season, your business may need some short-term working capital to get you through the winter (or summer). Maybe your biggest corporate client canceled a special event, 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.

All of the above put together means that it’s very likely that throughout your travel agency’s lifetime, you will need to seek out business funding.

Quick funding for travel agencies can take a lot of work. If you want to get unsecured small business loans, you’ll need outstanding personal credit, strong annual revenues, and a great business plan. The application process may take a while, and you might not get approved for as much money as you really need. As such, a business cash advance with no credit check offers a faster funding solution to help you thrive in your busiest seasons and deal with emergencies from cancellations.

Merchant Cash Advance Pros and Cons

Like any business financing option, MCAs have their pros and cons. Travel agents and MCA travel agency owners should way the following benefits and downsides before committing to an MCA provider.

Benefits of a Merchant Cash Advance

• Short application process: The MCA process usually takes a matter of days instead of weeks, as with traditional bank loans.
• Fast funding: You may be able to receive a lump sum of cash often within days of getting approved. That’s quick funding for travel agencies.
• Paid back faster: Since you repay a percentage of your future credit card sales, the more money you make, the more of your advance you pay back.
• Easier to get approval: MCA companies are more likely to take a chance on high-risk business models, like full service travel agencies.
• Possible to get a low factor rate: Your credit history will determine your factor rate, so if you have a great credit score, you’ll get a better rate. You may even be able to get a business cash advance with no credit check.

Downsides of a Merchant Cash Advance

• High costs: Your factor rate could be significantly higher than a typical business credit card interest rate. Your cost of capital will likely be higher than you’d get from a traditional loan or business line of credit.
• Additional setup fees: Not all MCA providers have them, but make sure you know exactly what you’re committing to before you sign
• Provider risk: Unscrupulous MCA providers abound — make sure you do your research!

This last point is very important. Because merchant cash advances are not loans — they are cash advances on anticipated future income — they are not governed by the same laws as traditional loans, lines of credit, business credit cards, and other business financing. While the best MCA providers can save your bacon, there are bad actors out there that can get you stuck in a never-ending, increasing cycle of debt, potentially costing you the travel agency you’ve poured your sweat into.

Alternative Fast Funding Solutions for Travel Agencies

MCAs can be a viable financial service for travel agencies, but it’s far from the only one available. American small businesses have access to a host of funding options. If you need to get an unsecured small business loan, consider these options:

• Business line of credit: A business line of credit is like a cross between a credit card and a loan. A lender approves you for a maximum revolving credit line that you can draw from to make business purchases. However, you’re only charged interest on the money you use rather than the full amount.
• Business credit card: Credit cars often have high interest rates but provided you pay back what you spend quickly, you can avoid paying interest.
• Invoice financing: Still waiting for a corporate client to pay the bill on that San Francisco or Las Vegas trip you planned for them? You can turn unpaid invoices into upfront cash by working with an invoice financing company.

Conclusion

Becoming an MCA travel agency can help you navigate financial emergencies and seasonal downturns. However, it can also saddle you with a damaging debt cycle. Always do your due diligence. Read online reviews, check the Better Business Bureau, and ask around. You, your travel agency, your customers, and your credit score all deserve an MCA that works for you.

FAQs

What is a merchant cash advance (MCA)?

In an MCA, a business receives a lump sum of cash in its bank account and then repays it as a percentage of its future credit card sales or other business receipts.

Is an MCA a loan?

An MCA is not a loan, but has some similar functions since a funder gives you money upfront that you must pay back later. However, MCAs are not regulated like loans. The government considers them commercial transactions so it’s crucial to do your research to make sure you’re working with a reputable MCA provider.

What are merchant cash advance pros and cons?

The main pros of an MCA is that you can get fast funding through a short application process that’s easier to qualify for. The downsides, however, are that there are many unscrupulous MCA companies out there and that MCAs are not regulated the same way that traditional loans are.

Can I get a business cash advance with no credit check?

It’s possible, depending on the company you’re working with. However, it’s unusual to get any cash advance without a credit check as this is how most providers determine the factor rate.

What are alternatives to an MCA?

Some of the best options for quick funding for travel agencies include business lines of credit, business credit cards, and invoice financing.

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