Businesses are often in need of a loan. Be it the purchase of equipment, working capital, buying inventory, renovations or perhaps an acquisition, a business will require money to finance the project. Bank loans are helpful but not easy to obtain. Small businesses in particular have a hard time getting approved for bank loans because of the stringent requirements and long timelines. The recession has also created a credit crisis that has aggravated the situation further.
Some of the available small business loans are lines of credit, term loans, equipment leasing, unsecured or secured working capital loans, franchise startup loans and SBA loans. All these loans involve comprehensive documentation including review of credit history, income projections, collateral, a convincing management and a great growth plan. In spite of doing all their homework, businesses may have to approach multiple financial institutions before they receive a loan since the approval rates are not very encouraging.
There is one other loan choice that could be ideal for your business if you hate the documentation and the time it requires to get a conventional loan or if you just can't wait for weeks to get it approved. It is called business cash advance or merchant cash advance (MCA). It is a much more attractive alternative for small businesses with urgent funding needs. Many banks, private companies, and credit card processing companies offer such financing. The interest rate on an MCA is higher than a bank loan, but the difference has shrunk in the past few years. The documentation required is rather minimal, and credit score ... well, if it's good, great. If not then it won't lower your chances of getting an advance though it may influence the amount of cash advance sanctioned. The approval cycle is quite short - anywhere from a few hours to merely 3 days. And best is that the cash is available in your business's bank account in just a few days to a week. That's just what makes MCA so popular - funds are available when needed the most.
The one necessary requirement for the approval of an MCA application is a history of decent amount of credit card receipts during the last few months (minimum average of $3000-$5000) and at least one year of having been in business. The business cash advance provider purchases a percentage of your future credit card sales receipts for the advanced amount. The payment deductions are managed at the credit card processor's end without needing intervention from the business or the cash advance provider. This is good as the business owner does not have to keep track of payments or payment dates. Another good trait of an MCA is that the monthly payment varies depending on monthly credit card sales volume and is fixed as a percentage of the same. Cash advance recipient is relieved of the pressure of sending in a fixed monthly payment since it can vary depending on monthly sales.
Financial loan laws do not regulate merchant cash advance lending since it is not a loan but a purchase of future revenue. There is no limitation on the interest rate a cash advance provider can charge. It is advisable to work only with reputable providers to avoid unscrupulous lenders. Review the contract with a fine tooth-comb to ensure that there are no hidden costs or ambiguous terms and conditions.
The merchant cash advance industry is gradually maturing and many bigger players are making efforts to regulate it to some extent. As a result, MCA is quickly becoming a mainstream source of finance for businesses of all sizes.
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