In 2024, consumer packaged goods (CPG) brands face a rapidly evolving funding landscape. Choosing the right funding strategy has become more critical than ever, as it directly impacts your brand’s ability to scale, meet demand, and remain competitive. Whether you’re looking to boost production, expand distribution, or enhance marketing efforts, securing the right type of funding—especially for inventory management—is key.
One financing option that has gained attention is the Merchant Cash Advance (MCA). While it offers quick cash, it’s not the best fit for every CPG brand.
Let’s explore how an MCA works and its pros and cons.
What is a Merchant Cash Advance?
A merchant cash advance provides a lump sum of cash in exchange for a portion of your future sales. Unlike traditional bank loans, MCAs don’t require collateral and have a much quicker approval process. Lenders assess your sales—typically through credit card receipts—to determine how much you qualify for and how quickly you can repay the advance.
This funding is often repaid daily or weekly through a percentage of your sales, known as a “holdback.” While this may seem convenient, it can create challenges for brands with seasonal or fluctuating sales.
Is a Merchant Cash Advance Right for Your CPG Brand?
In 2024, consumer packaged goods (CPG) brands face a rapidly evolving funding landscape. Choosing the right funding strategy has become more critical than ever, as it directly impacts a brand’s ability to scale, meet demand, and remain competitive. Whether you’re looking to boost production, expand distribution, or enhance marketing efforts, securing the right type of funding—especially for inventory management—is key.
One financing option that has gained attention is the Merchant Cash Advance (MCA). While it offers quick cash, it’s not the best fit for every business. Let’s explore how an MCA works, its pros and cons, and why alternatives like Kickfurther might better suit your CPG brand’s needs.
Pros and Cons of MCAs for CPG Brands
Pros
- Fast Cash Access: MCAs provide funding quickly, making them useful for covering urgent expenses like increased production costs, unexpected repairs, or marketing pushes.
- Credit Flexibility: MCAs are generally available to businesses with less-than-perfect credit scores.
- No Collateral Required: You don’t need to risk your business assets to secure funding.
Cons
- High Costs: MCA fees—called “factors”—are significantly higher than traditional loan interest rates, leading to a higher overall repayment amount.
- Impact on Cash Flow: The daily or weekly holdback can strain your cash flow, especially during slow sales periods.
- Short Repayment Periods: The need to repay quickly can create financial pressure, leaving little room to reinvest in growth.
Is an MCA Right for your CPG Brand?
While MCAs can provide quick cash, they may not be the best option for every CPG brand. They work well for businesses with steady, high-volume sales and short-term funding needs. However, if your brand experiences seasonal sales fluctuations or operates on thin margins, an MCA could lead to financial strain.
Do you have a MCA term sheet? Use our MCA Calculator to discover the true cost of your MCA.
Instead, CPG brands should consider alternatives that align better with their long-term growth strategies and inventory cycles.
Inventory Financing: An Alternative to MCAs
Inventory financing allows CPG brands to leverage the resources of a financing partner to pay for inventory production. This type of financing is especially helpful for brands that experience significant delays between paying for inventory and receiving payment from future sales.
With inventory financing, the products produced act as the collateral for the financing, which means that if your brand reports an inability to repay the funding, the inventory can be sold to cover the debt. This can provide a level of security for the financing partner, which can result in more favorable terms for the brand.
One of the key benefits of inventory financing is that it can be customized to address your business’s exact manufacturing, shipping, and sales timelines. Some providers even offer payment terms that align with natural cash flow cycles, meaning that no payment is required until your inventory sells. This can help to improve your cash flow and reduce the risk of running out of working capital.
Inventory financing can also be helpful for brands that want to receive volume-based discounts by placing larger orders to support all of their sales channels. This works best when done on a regular basis, such as quarterly, and can help to prevent stock-out issues that can stifle growth.
Inventory Financing with Kickfurther
For physical product companies (CPG companies), or those producing shelf-stable consumables, a growth funding option that provides larger amounts than traditional financing and at faster speeds is inventory funding with Kickfurther.
Kickfurther funds up to 100% of your inventory costs on flexible payment terms that you control. Kickfurther’s unique funding platform can fund your entire order(s) each time you need more inventory, so you can put your capital on hand to work growing your business without adding debt or giving up equity.
Why Kickfurther?
No immediate repayments: You don’t pay back until your product sells and you control your repayment schedule.
Non-dilutive: Kickfurther doesn’t take your equity.
Not a debt: Kickfurther is not a loan, so it does not put debt on your books, which can sometimes further constrain your access to additional capital providers and diminish your valuation if you approach venture capital firms.
Quick access: You need capital when your supplier payments are due. Kickfurther can fund your entire order(s) each time you need more inventory.
Interested in inventory funding through Kickfurther? See how much capital you can access by creating an account today at Kickfurther.com!
Conclusion
Funding is the lifeblood of any growing CPG brand. While MCAs might seem appealing for their speed, they often come with high costs and rigid repayment terms that don’t align with the unique challenges of the CPG industry. Alternatives like Kickfurther offer a smarter, more flexible way to fund inventory and drive growth.
Before deciding on any funding option, take the time to evaluate your brand’s cash flow, sales patterns, and growth goals. The right funding strategy will empower you to scale sustainably while maintaining control of your business’s future.
Learn more about how Kickfurther can help your CPG brand grow here.
