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Published September 07th, 2016 by

Current Trends in Short Term Business Loans That You Must Know

Current Trends in Short Term Business Loans That You Must Know

There are many compelling reasons why businesses borrow money. Some need additional capital, additional funding for a new product or service to launch, or fill in some gaps in cash flows. Nonetheless, before engaging in any short term or much more, on long term loans, a business should be able to assess the need and its capacity to pay first. By knowing these factors, a business can make more effective decisions that will suit its needs rather than having an added liability.

One popular option is the use of short term business loans. These are from alternative lending sources, wherein it provides a business the lump sum amount of what it needs upfront, with the guarantee to repay in a structured payment scheme. Usually, short term business loans involve smaller amounts of money and shorter repayment periods. Here are some of the reasons why businesses resort to short term business loans:

  1. Cash Flow Gaps

Short term loans are effective back ups for businesses that have cyclical or uneven sales structure. It also used to fill in some gaps in the cash flow that needs a small amount to finance, but will have a big impact if will be neglected.

  1. Opportunities and Seasonal Trends

Some businesses tend to be more profitable during certain seasons like the holiday season. This is when they need additional capital in order to add more products to their inventory to satisfy the increased demand, and to compensate for the salaries of additional manpower required to produce more outputs.

  1. Business Expansion

Another compelling reason why small businesses borrow money is to fund their expansion. In most cases, businesses wanted to avail the season where the cost of materials or resources needed is lower.

  1. Unforeseen Emergencies

Any business venture comes with a risk, and it is inevitable that a business will experience some unforeseen circumstances that may sap its resources at an instant. Short term loans are easier and faster to secure, so it is best to use it to get back on your feet in no time.

The gaining popularity and prevalence of non-traditional and alternative lending sources are mainly because of convenience and its faster approval process. Most short term business loan providers are lenient with their application process and documentation, and has a higher approval rate than with traditional bank loans.

Pros and Cons of Short Term Business Loans

Loans can either serve as a life saving product, or an added liability if not utilized appropriately. It is important that a business must understand that not all lending sources are created equal in footing, and must be carefully evaluated first before diving in any.

One of the advantages of availing a short term business loan is it simplifies the repayment process by making it shorter, which makes businesses more mindful of their spending. It is also an effective way to boost your credit score, which is helpful to gain more competitive interest rates in future loans.

However, there are also some drawbacks in getting a short term loan. One of the primary disadvantage is its higher interests compared to its traditional counterparts. Since it is to be repaid in a shorter period of time, there is little time where the payments can be spread out. It also incurs more top up charges when you fail to pay in a timely manner.

More entrepreneurs are taking advantage of a strong support system for startups in the form of technology and even funding options like business loans. It is important the before getting in any financial liability, you must weigh the pros and cons of your choice to make better and sound decisions that may affect your business for the long term.

Small Business Capital Options

Now that the business lending industry is gaining momentum with the rising prevalence and popularity of non traditional options, more entrepreneurs are encouraged to pursue their ideas and turn it into a profitable venture. Small businesses have a variety of options in terms of additional backup fundings, which include the following:

  1. Merchant Cash Advance

The main advantage of getting a merchant cash advance is the ease of process and easy and flexible repayment options. Most merchant cash advance services can also be availed with minimal documents needed to avail. The processes involved are also transparent, and only takes about the whole day or a days maximum to gain approval. The approval rate is quite high too, since it doesn’t deal solely on credit scores and background checks, but rather on real life data such as big business potential for future sales and robust sales performance.

Merchant cash advance companies are suitable partners for business that may opt for a nontraditional financial product, or is not eligible for traditional loans. However, in order to qualify, it requires a certain amount of monthly receivables out of credit and debit card payments. This is where the merchant will deduct a certain percentage in either daily or monthly intervals until the cash advance has been fully paid. These regular payments are computed based on equal spread intervals of the whole amount plus the interest rate agreed upon. Loan maturity doesn’t usually reach a year.

  1. Flexible long term and short term loans

Other than banks, there are other lending companies that can extend either long term and short term loans, depending on the need and eligibility of the borrower. More often, they process faster than banks, and loan terms are more transparent.

  1. Credit Lines

This is more like an account based, funding option wherein a credit lending company can give a considerable amount of credit line for the business to utilize. Funding and payment options can be made flexible, and the application process can be done online.

  1. Working Capital Funds

This another non traditional funding source, wherein it usually intervenes past the startup phase of a business. There is an eligibility process when availing this, which includes information about your years of operation, a certain amount of sales annually, good personal credit and a substantial number of employees.

  1. Unsecured business loans

These are financial lending sources that don’t require a collateral in order to avail, hence it was termed “unsecured”. Unsecured business loans simplify the process of traditional bank lending services in terms of the turnaround time and requirements. It also offers more competitive interest rates than others short term loans today.

  1. Microloans

This is also a type of alternative lending source, but is considered a downsized version of a traditional bank loan. In fact, it asks for almost the same requirements like a collateral and equity. You must also show proof of capacity to pay, and must be in good standing with other creditors, as well as a good credit score of about 500 or higher.

  1. Crowdfunding

Crowdfunding is a kind of online platform wherein it connects borrowers from various sources of additional funding based on your business profile. It caters to a lot pf users worldwide, and the funding options are quite customizable according to preference and capacity to pay. All types of business can benefit from crowdfunding, including the seasoned ones and the startups.

Trends to Watch Out for in Small Business Lending

Small businesses should be aware of the latest trends in the merchant cash advance industry or in other small business lending sources. This is in order for them to make necessary arrangements prior to future lending, which can help finance their future ventures. According to the website adp.com, here are some of the small business lending trends for 2016 that you must take note of:

  1. According to CNN Money, in December of 2015, the Federal Reserve has increased its interest rates, which is actually the first time in history. It came as a big deal because most lenders such as merchant cash advance companies, tend to follow its trend. This could mean higher borrowing cost for this year, since most businesses might opt to do the borrowing while the interest rate isn’t being raised high yet.
  1. Banks are becoming more open with loaning to small businesses compared with what it was used to be before. According to a study by Small Business Trends, large banks have higher approval rates of granting business loans to small players, which is roughly twice as much in number than they did in 2014. This is a substantial proof that the economy is getting stronger, and with the Federal Reserve increasing its interest rate, will give banks more profit so they are willing to give out more credit than usual.
  1. The emergence of the online lending services are by products of a constant evolution and rapid advancements in the market today, brought about by technology. These online lending players are leading a new trend, which even makes traditional lending processes be branched out to online too.

Overall, the current trends in small business lending provide a positive insight for borrowers. The advancement in technology makes processes and approval times faster and more convenient which is attractive for all types of business owners and even startups alike. Large scale lenders are also becoming more open to small businesses, which guarantees a higher number of approved loans this year.

Merchant Cash Advance Services: Points to be Wary of Before Availing

Merchant cash advance services are rising in popularity because of its reliability, simplicity and convenience. Short term business loans can be quite attractive and less risky since it is to be repaid in a shorter period, but a borrower must be wary of these factors:

  1. Take due diligence before taking money from any merchant cash advance loan provider you will encounter. It is best to do an exhaustive research about reviews of merchant cash advance companies or interview existing clients and entrepreneurs that have dealt with them previously.
  1. Track your sales records to have a better forecast of your future sales performance. This is important in gauging the capacity of your business to repay the cash advance within the designated time frame.
  1. Be informed about all applicable fees in each case scenario. The best merchant cash advance company should not withhold any information about fees and charges to its clients which can lead to misinformation and dispute later on.

For the latest and detailed client ratings and feedbacks from the top merchant cash advance companies in the market today, check out CrowdReviews.com’s reviews of merchant cash advance companies to gain better insight about how the companies you are eyeing fare compared with others.

Jeev Trika

Jeev is an executive leader with successful experience building research portals which recommend the best products and services in various highly competitive verticals.

Our rankings are completely independent, transparent, and community driven; they are based on user reviews and client sentiment. These merchant cash advance companies had to earn their way up and didn't just pay their way up.

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