How To Deal with Staff Shortages Using a Merchant Cash Advance

Updated on:
March 20, 2024

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Staff shortages occur when a business’s operations are hindered by insufficient staffing. Whether caused by sudden increases in demand, economic conditions, or changes in business operations, shortages in personnel can have a significant impact on a business’s bottom line. Fortunately, there are a variety of financing options available to businesses that need to quickly address staff shortages.

One such option is a merchant cash advance (MCA), a type of financing that allows businesses to access quick cash without the need for real estate collateral or good credit. Small business owners can use a merchant cash advance to cover staff shortages by hiring new employees, training current employees, and implementing retention programs.

Why do Businesses Experience Staff Shortages?

Here are five potential causes of staff shortages in a business:

  1. Lack of skilled workers: The demand for skilled workers may exceed the supply, making it challenging for businesses to find the right talent.

  2. High employee turnover rate: If employees leave the company frequently, it can result in a shortage of staff.

  3. Increase in demand for services: If the business experiences a sudden increase in demand for its products or services, it may struggle to keep up with the workload.

  4. Economic conditions: Economic downturns may force businesses to reduce their workforce, leading to a shortage of staff.

  5. Changes in business operations: If the business changes its operations, such as expanding to new markets or introducing new products, it may need additional staff to support these changes.

What is a Merchant Cash Advance?

A merchant cash advance is not a loan, a merchant cash advance is an alternative financing option for small businesses in which a financing company provides a lump sum of cash in exchange for a percentage of future revenue. This type of financing is typically used by businesses that need quick access to cash and may not qualify for a loan.

Merchant cash advances can be helpful for several reasons:

  1. Quick access to cash: Merchant cash advances are typically approved and funded quickly, often within a few days, which can be helpful for businesses that need working capital immediately.

  2. No real estate collateral required: Merchant cash advances are unsecured, which means that businesses don’t need to provide real estate collateral to receive funding.

  3. Flexible terms: Repurchase of a merchant cash advance is based on a percentage of future sales, so businesses don’t have to worry about making fixed payments each month.

  4. No impact on credit score: Merchant cash advances don’t typically appear on a business’s credit report, so they don’t impact the business’s credit score.

  5. Can be used for a variety of purposes: Merchant cash advances can be used for a variety of business purposes, such as covering operating expenses, purchasing inventory, or hiring additional staff.

Merchant Cash Advances: Factor Rates, Not Interest Rates

Factor rates and interest rates are two different ways that cash advance funders and lenders express the cost of capital.

A factor rate is a multiplier that is applied to the amount advanced, and it represents the total amount that the company receiving the advance will be required to repay. For example, if a business is advanced $10,000 at a factor rate of 1.2, it will be required to repay a total of $12,000 (1.2 x $10,000) over the course of the advance repayment*. Factor rates are typically used in the context of merchant cash advances.

Interest rates, on the other hand, are expressed as a percentage of the amount borrowed, and they represent the cost of borrowing money over time. For example, if a business borrows $10,000 at an interest rate of 10%, it will be required to repay a total of $11,000 ($10,000 + 10% interest) over the course of the loan. Interest rates are typically used in the context of longer-term loans, such as term loans or commercial mortgages.

One key difference between factor rates and interest rates is how they are calculated. Factor rates are a fixed amount that is applied to the principal, while interest rates are calculated based on the outstanding balance of the loan over time.

Why Not Use Business Loans to Cover Shortages?

Entrepreneurs might ask themselves why they should seek out alternative financing like an MCA instead of heading down to the local bank for a small business loan to finance their hires, training, and retention efforts. It’s a fair question.

The answer comes in the form of MCA’s greatest benefit: simplicity and speed. The application process for a SBA loan or business line of credit can take weeks or month. Small business financing through a bank lender may also requires excellent credit in most cases. Even if you’ve got bad credit, you can receive MCA funding as long as you’ve got sufficient revenue (as little as $5,000 per month).

With an MCA, if you know you need to add talent to your staff in the near future, you can finish an MCA application in minutes and have your business funding hit your bank account as quickly as the same business day.

Using Merchant Cash Advance to Address Staffing Shortages

A. Hiring temporary or contract workers

Temporary or contract workers can be a good option for businesses that need additional staff on a short-term basis, or for businesses that want to test out a worker’s fit before hiring them permanently. With a merchant cash advance, businesses can quickly access the cash they need to cover the costs of hiring additional staff, such as recruiting fees or wages.

To maximize the benefits of hiring temporary or contract workers, businesses should carefully evaluate their needs and goals and consider factors such as the skills and experience required, the duration of the project, and the budget available. They should also develop a clear plan for onboarding and managing temporary or contract workers to ensure that they are integrated into the team and performing at a high level.

Ultimately, hiring temporary or contract workers can be an effective way for businesses to address staff shortages while minimizing the risks associated with long-term hiring commitments. With a merchant cash advance, businesses can access the capital they need to make the necessary hires and keep their operations running smoothly.

B. Training current employees for additional responsibilities

Training can be a good option for businesses that have loyal employees who are interested in expanding their skill sets and taking on additional responsibilities within the organization. By investing in training, businesses can upskill their existing workforce and ensure that they have the talent they need to meet their operational needs.

With alternative funding from a merchant cash advance, businesses can access the capital they need to cover the costs of training, such as registration fees, course materials, or instructor salaries. They can also use the funds to provide incentives for employees who complete training, such as bonuses or promotions.

To maximize the benefits of employee training, businesses should carefully evaluate their training needs and develop a clear plan for implementation. They should also provide ongoing support and coaching to employees to ensure that they are able to apply their new skills in the workplace.

C. Investing in employee retention programs

Employee retention programs are designed to improve employee satisfaction and loyalty, which can help businesses retain their best workers and minimize the costs associated with turnover.

With a merchant cash advance, businesses can access the capital they need to implement a wide range of retention programs, such as offering competitive salaries and benefits, providing flexible work arrangements, or offering training and development opportunities. By investing in these programs, businesses can create a workplace culture that values and supports employees, which can lead to higher retention rates and greater productivity.

D. Increasing employee benefits

A merchant cash advance can provide businesses with the cash they need to increase employee benefits, which can be a valuable way to address staff shortages and retain top talent. Providing competitive benefits is an effective way to show employees that they are valued and appreciated, and can help businesses attract and retain the best workers.

With a merchant cash advance, businesses can access the capital they need to increase benefits such as health insurance, retirement plans, paid time off, or other perks that can improve employee satisfaction and loyalty. By investing in employee benefits, businesses can create a more positive work environment that supports employee well-being and productivity.

You can also use merchant cash advance funding to create a referral program to work against a staff shortage. Your existing team could receive a small bonus for bringing in an awesome new hire.

E. Outsourcing certain tasks

Outsourcing can be a good option for businesses that need specialized skills or resources that may not be available in-house, or for businesses that want to free up their staff to focus on core activities.

With a merchant cash advance, businesses can access the capital they need to pay for outsourcing services, such as IT support, accounting, marketing, or administrative tasks. By outsourcing, businesses can benefit from the specialized skills and expertise of external providers, as well as the flexibility and cost savings that come with outsourcing.

Steps to Get a Merchant Cash Advance

If you’re considering a merchant cash advance for your business, here are the steps you’ll need to take:

  1. Determine the amount needed: The first step is to figure out how much money your business needs. This will depend on the purpose of the funding and the specific needs of your business.

  2. Research merchant cash advance providers: There are many companies that offer merchant cash advances, so it’s important to research and compare different providers to find one that offers competitive rates and terms.

  3. Apply for a merchant cash advance: Once you’ve selected a provider, you’ll need to complete an application that includes information about your business and your creditworthiness. Some providers may also require financial statements or bank statements to assess your eligibility.

  4. Understand the terms and conditions of the agreement: Before accepting a merchant cash advance, make sure you carefully review the terms and conditions of the agreement. Pay attention to the repayment terms, fees, and any other requirements that may be included.

  5. Repay the merchant cash advance: Repayment of a merchant cash advance is typically based on a percentage of future revenue. The provider will automatically deduct the agreed-upon percentage from each sale until the advance is fully repaid.

It’s important to carefully consider the cost of the merchant cash advance and ensure that it’s a viable option for your business. Merchant cash advances can be a helpful source of financing for many businesses.

*Repayment in this context describes the process of repurchasing a merchant cash advance. It does not describe the process of repaying a loan. MCAs are legally distinct from loan products.

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