For quick funding fixes for your business, one can avail of a tailor fit solution out of a variety of options that the business lending industry is offering these days. Gone are the days of long term binding, hassle processing, and a mountain-ful of documents to submit associated with business loans. There are more types of funding options that are easily accessible and convenient so that your business can always have a reliable cash solutions partner for every opportunity or emergency it encounters.
Funding Options for Businesses
A small business nowadays is actually enjoying different ways of gaining leverage arising from high credit scores, which are used to benefit big businesses only. There are many entrepreneurs who found an opportunity for business arising in the financial industry which caters to small businesses. In fact, according to the US Small Business Administration, 99.7% of American businesses are actually under the small business scale type (with less than 500 employees). This is a significant percentage which poses a huge market in small business lending and financing.
Getting the advantages of a good credit standing isn’t in the nature of borrowing alone, but over how the repayment has been rendered. It is important that a business should evaluate first its own capacity and growth before knowing the best third party funding that will be able to meet its needs and at the same time, can help it achieve a good credit score. Nowadays, businesses are spoilt with options of third party funding companies, whether using traditional or non traditional methods. Here are the common and newer funding options available for businesses today:
- Merchant Cash Advance
This is one of the newer funding options for businesses, wherein a merchant cash advance loan provider gives a business a lump sum amount, in exchange for some percentage of its daily credit card or debit card sales until the loan has been repaid fully.
- Bank Loans
For companies with higher amount requirements, getting a bank loan is their best bet. Bank loans essentially contributes the highest credit scores because of its authority and stricter loan guidelines.
- Credit Cards
Credit cards are initially intended for personal or consumer loans, but in the past years have extended its services to businesses that are needing short term financing involving smaller amounts. It is also quite attractive because the application and approval process is faster than typical loans, only that the interest higher because of the higher risk and shorter repayment period.
- Crowdfunding
The idea is to bring out an idea or concept for a business in a centralized platform, then engaging a community of funders or investors to help funding it. It encourages collaboration in establishing and building a business, which benefits from multiple funding sources and diversified ideas for improvement.
- Angel Investing
This is one of the more modern approach in business funding, and offers varied returns and advantages. One of the most important aspect of getting an angel investor is that mostly, they are interested in businesses that they have expertise or experience dealing with, which also beneficial in terms of knowledge and added input for your business growth, not just financially.
- Small Business Loans
Some banks are still reluctant about granting small business loans or startup loans because generally, it needs proof of stability and good sales track record out of a borrower in order to guarantee repayments. This what makes small business loan companies attractive to small business entrepreneurs, because they are more lenient with application requirements.
Merchant Cash Advance in Detail
The essence of merchant cash advances is the opportunity to get the worth of your future sales today as a lump sum amount. Meaning, one can actually “sell” its receivables to its own merchant bank or company, in exchange for funding in terms of cash. In its earlier years of development, the funding can be gained from receivables out of credit card and debit card payments, but today, it is also flexible to other lines of credit from other merchant cash advance companies.
The repayment structure is basically automated from the merchant cash advance provider’s side. From the agreed upon interest charges and repayment period, merchant cash advance loan providers take out a percentage of the business sales acquired using its cashless terminal, or out of credit and debit card payments. This is usually done on a daily basis, until full payment has been rendered. Usually, the repayment period varies, depending if you agreed on a fixed or sales percentage based amortization. But the payment terms doesn’t go beyond a year.
What Are Its Advantages?
What attracts small businesses to avail of merchant cash advance services is that it is simpler, it is generally easily accessible, it is short term and faster to process than other types of funding solutions. But technically, a merchant cash advance is not a loan, but rather a financial type of product, that is why it is considered as an “unsecured loan” due to the absence of collateral.
A merchant cash advance company is also more lenient when it comes to credit scores and histories. It doesn’t also require more upfront business assets in order to prove the capacity of repaying the bank loan, but rely on the opportunities and potentials arising from the business in terms of its future receivables. A borrower must then give proofs and plans for business growth and expansion alongside its application for the merchant cash advance firm to evaluate your business capacity better. Although as mentioned, it doesn’t rely heavily on credit scores, but it still allows a business to establish it on its own. This is particularly helpful when making another funding in the future, wherein if you were diligent with your payments and the business yields high daily cashless sales, it can even lower your interest charges for future funding needs.
How It Works?
Another definition of merchant cash advance services is that they are advance payments for your business’ future income. Merchant cash advance companies will give you its equivalent lump sum, and repayment automatically starts as a series of regular payments using a percentage of your credit card and debit card sales receipts.
The percentage is called a “holdback”. It is anywhere between 5% to about 20%, based on the amount or size of the cash advance. Basically, this is higher when it is your first time to avail, but can be negotiated when availing funding again in the future.
The amount of cash advance grant usually depends on the last 3 months worth of credit and debit card sales that your business has accumulated. But each merchant cash advance loan provider has its own calculator to determine the cash advance amount that your business is eligible for.
What Does Business Should Be Wary About It?
Gaining the benefits of an unsecured and short term loan has its own corresponding risks to take. Nowadays, most business dilemmas arise from the issue about choosing convenience over cost. That is one aspect of availing a merchant cash advance loan.
- Any borrower must be aware of the prevailing rate of its loan in order to predict how much it has to pay on a regular basis. Knowing also the amount you owe versus the amount it was given to you will also help you in evaluating its worth for your business. Since a merchant cash advance base your payments from a percentage of your daily cashless receipts, it is quite difficult to arrive at a specific amount that you will actually repay. This also entails that the repayment period will vary, which can accelerate faster if you yield higher credit or debit card sales everyday.
- A borrower, must therefore at least know the factor rate that you are working on with your cash advance. This is to be able to gain an accurate insight about the whole repayment amount you are dealing with.
- Since a merchant cash advance is technically not a loan, it is not governed by prevailing regulatory laws and rules concerning standardized charges. The borrower is held accountable for the consequences arising from misunderstanding about the contract clauses stipulated in the contract.
- There is also no benefit in repaying what you owe early. Interest charges are fixed, and cannot be recomputed in terms of periods like with traditional business loans.
- Availing an MCA may also hurt your actual credit scores because basically, it is an option for businesses that have bad credits. Yet, availing traditional business loans that put premium on credit scores actually do background check on you first. The negative impact on an MCA on your credit score will just apply if you fail in some areas you are checked with, and not directly on the reason that you availed an MCA in the first place.
- If your business operates in a stable market, chances are that you may be subjected to the dangers of undergoing a debt cycle.Higher interest rates plus the short term repayment periods may hurt your cash flow, which will put your overall financial status at risk.
How to Choose the Best Merchant Cash Advance Company to Deal With
Merchant cash advance companies doesn’t limit itself to a bank, but to other financially capable lending entities that have granted license to operate. Therefore, it is hard to choose the best company to deal with, especially when it is your first time to do so. The safest bet would be the same merchant bank that handles your cashless transactions, in order to maximize your relationship with it, and the convenience in the application and approval process.
The best merchant cash advance companies are the ones who are able to cater to many satisfied customers with its fast processing and flexible repayment terms. One characteristic to look for is its own funding source. The most credible ones are those that have robust funding sources, which may mean that they are more lenient with repayment and interest rates can be negotiable as well.
To help you shortlist the best companies that will satisfy your own choosing guidelines, see CrowdReviews.com’s merchant cash advance company reviews from actual clients all over the world.
John Tovar
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