Merchant Cash Advance
Published September 12th, 2016 by

Reasons Why Businesses Resort to Merchant Cash Advance Firms


reasons-why-businesses-resort-to-merchant-cash-advance-firmsAt one perspective, small businesses were the ones that can be left standing amidst a major economic crisis. Mainly because they don’t have many resources at stake, or that its customers are localized instead. For cases that consumers will be left with little purchasing power to boot, they would rather deal with small businesses within the neighborhood in order to save on other utilities like gas.

On the other end, though, one effect could be that lenders will have to tighten their belts over granting loans to businesses. When a country is in such dire financial situation, it would become harder to secure a loan because these financial institutions themselves, find that their reserves deplete faster and mortgages were not being paid on time. It becomes a collateral damage in these cases, and everybody is affected. Thus, businesses were left with exploring other options or worse, resort to their own personal savings just to keep on going.

The financial aspect of a business, whether big or small, is one of the major determinant of its success. Having an upfront capital is something that entrepreneurs save up for, as well as for operating expenses. Having a cushion for backup is also a must, but this sometimes lack in small businesses. They instead rely on some short term, non traditional funding solutions for these situations. There are a variety of options for business funding in the market nowadays, but still depend on the different factors. And for once, banks will always be there, and it is still recommended that your business resort to its help instead, since getting one from a bank will constitute a better credit score.

Why Businesses Borrow Money?

In the first place, money is an essential part of a business venture. It begins, and continues with a steady cashflow, and all things will work according to how money will flow through it. The need for money isn’t just the basis for business success, though, but no one can deny that it is a very valuable aspect of it.

For a startup entrepreneur, one of the basics that he has to secure is a capital. This capital can be further broken down into an upfront capital, and a working capital. The upfront capital is the one used mainly for investing inequipments and rental or purchasing of the place. The working capital will be needed in order to buy an initial inventory, for the initial salaries of the workers, and for funding the utilities for the first few months, or a year of operation. It is expected that a business will still have to reach a point of break even (ROI) before even realizing a profit, so a substantial working capital is important to have early on.

  1. Oftentimes, an entrepreneur can overlook some matters in his business which will result in being shorthanded with his working capital. This can disrupt a steady cashflow, and will then be quite challenging to get by.
  1. On the other hand, even a seasoned business man can experience some drawbacks along the way, such as being subjected to some unexpected financial situations like clients backing out, fraud or a major economic crisis.
  1. There are also businesses, particularly retailers, operate in a cyclical working condition. This means that their businesses are considered seasonal, which makes them wait for certain holidays or months in order to boost their sales. It is quite challenging for them to operate this way, and having to endure a longer lean season may not give them enough additional capital to cater to the demands when the peak season arrives.

These are some of the typical case scenarios where businesses resort to borrowing additional funding. It is certain that there are many other reasons to do so, but the bottom line is it is an inevitable part of the risk involved in sustaining a business.

Current Trends in Small Business Funding Solutions

According to a business startupinfographic by Visionlaunch, 70% of business startups use their personal savings as their main source of funding. While this is a safe way to fund your business, it will entail more sacrifices on the entrepreneur’s part, especially on the personal aspect.

Fortunately, business owners need not to suffer much with these. There are now many alternative funding options that are available for all types of business situations. Entrepreneurs are gaining more motivation with continuing with their dreams of becoming their own bosses, through a strong financial support system that’s given by different funding solutions, provided that they deal with the right lending partners.

However, it is important that a business will evaluate all available options first before utilizing what suits its need best. It is also noteworthy to mention that not all entrepreneurs qualify right away, as each loan provider has its own set of standards and eligibility requirements to ask for. These include proofs of sales performance, cashflows, number of employees, and other industry-specific trends.

The lending standards are becoming more varied and quite strict for some, but it is understandable because there are many more factors that affect sales and trends altogether. The lenders themselves need to evaluate the risks they take too, in order for them to have a sustainable income.

Credit Card Services for Business

As a regular consumer or as a business owner, there is a huge probability that you were offered a credit card. It can be a useful personal financial tool if utilized properly. And with the continuous expansion of services that credit card companies are doing today, credit cards can now be valuable for business purposes too.

Small business credit cards are being offered with benefits that a regular credit card extend to. It involves a revolving line of credit, which can be used for a variety of purposes such as online purchases and POS in merchants. A corresponding interest charge will become part of what you supposed to pay, if you fail to pay the charges incurred at the right time.

Another advantage that a credit card or merchant company brings to businesses is the capability to extend a cash advance. This is a different line of credit from the usual credit cards, but you can basically deal with the same credit card provider or to the merchant company that facilitates your credit card and debit card payments in the business. A merchant cash advance is not technically a loan, because you just “advance” a portion of your future credit and debit card sales. The merchant cash advance loan provider in turn deducts a percentage of your credit and debit card receipts daily, until the full amount plus interest charges has been repaid.

Business Loan vs. Cash Advance

Merchant cash advance services are becoming popular with small businesses since it is accessible and the requirements are easily obtainable.

Merchant cash advances are not loans itself. Because of this, it is not subjected to federal regulations considering loans and debts. As a consequence, it is not a good alternative if you seek credit score building loans, which only a bank can imply.

However,a merchant cash advance company appeals better with small businesses, mainly because of its accessibility. Banks tend to have stricter eligibility and process requirements than with merchant cash advances. Small businesses may not have substantial assets and high sales performance margins as big businesses do. This is why many small businesses have a hard time securing a business loan, which makes them resort to alternative funding options like a merchant cash advance.

Key Advantages of Using Merchant Cash Advance

Small businesses are attracted to a merchant cash advance service for a number of reasons and needs. But here are the fundamental advantages that a merchant cash advance firm can give a business:

  1. No collateral

A merchant cash advance is considered an “unsecured loan”, which means that the company extending it doesn’t hold any asset of the borrower as a guarantee of payment. This kind of risk is then matched with a higher interest and shorter payment terms.

  1. Fast application and process

Most merchant cash advance services can be availed online too. It will take a borrower a matter of minutes to apply, and the approval process usually takes hours or a few days to commence. Requirements are also lenient, making it a better option for grabbing an opportunity or for emergency situations that need immediate cash.

  1. Easy repayment

Repayment has also been automated by deducting a portion of credit and debit card sales until the full amount and all associated charges have been repaid. This makes it easier for businesses not to miss a payment and gain more interest charges.

  1. Flexible repayment scheme

Merchant cash advance loan providers deal with a borrower by coming up with a certain percentage that will be deducted to the daily credit card and debit card receipts. This is a more friendly approach in repayment for a fixed amortization amount may hurt your cashflow during the leaner months in the business.

  1. Higher approval rate

Merchant cash advance companies only deal with average sales performance as an indicator for approval. They are actually flexible about the amount of the grant, which depends on the capacity of the business to generate credit and debit card sales everyday. Subsequent cash advances can also entail lower interest rates if the previous advances are paid easily.

Things to Consider Before Getting a Merchant Cash Advance

With so many options about funding solutions in the market today, a business must also deal with its own needs and the more appropriate solution it finds most beneficial for him. Most merchant cash advance firms are flexible with lending you with the amount you need, and they can even help you gain a better perspective about the implications of it in your own cash flow.

Before settling with a merchant cash advance company of your choice, make sure that you have explored all viable options and vendors available. It is important that the funding option you choose is aligned with your business plan in order to deal with it without fuss. Top merchant cash advance companies are accommodating with further inquiries, and being experienced financial experts themselves can also guide you in choosing better alternatives that will be more advantageous than being a burden to your business.

Read on’s reviews of merchant cash advance companies for a better view of how these providers deal with their clients’ needs through feedbacks and ratings. This can help you gauge the best merchant cash advance loan provider for your business’ unique needs.


John Tovar

John specializes in the creation and planning of business-centric mobile applications and mobile website design and development.

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