subject: Business Cash Advance - The New Source Of Capital For Small Business [print this page] Businesses are often looking for a loanBusinesses are often looking for a loan. It could be for working capital, purchase of equipment, buying inventory, renovations or even an acquisition, a business will require cash to finance the project. Bank loans are helpful but difficult to secure. Small businesses especially have a challenging time qualifying for bank loans because of the stringent criteria and extended timelines. The downturn has also spun a credit crunch that has worsened the situation further.
Some of the available small business loans are lines of credit, term loans, equipment leasing, secured or unsecured working capital loans, franchise startup loans and SBA loans. All these loans need extensive documentation including projection of past and future income, review of credit history, collateral, a good management and a notable growth plan. Moreover, businesses may have to apply to multiple financial institutions before they acquire a loan since the approval rates are not very promising.
There is another funding choice that may be appropriate for your business if you dislike the documentation and the time it requires to get a conventional loan or if you just can't wait around for several weeks to get it approved. It is called merchant cash advance (MCA) or business cash advance. It is definitely a better choice for small businesses with urgent financing needs. Many private companies, banks, 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 paperwork involved is fairly minimal, and credit score ... well, if it's good, great. If not then it won't lower your odds of receiving an advance though it may affect the amount of cash advance approved. The approval cycle is quite short - anywhere from a few hours to only 3 days. And the cash is available in your business's bank account in a few days to a week. That's just what makes MCA so popular - funding is available when needed the most.
The one prerequisite for the approval of an MCA application is a record of decent amount of credit card sales during the past few months (typically an average of $3000-$5000) and not less than nine to twelve months of having been in business. The merchant cash advance provider buys a percentage of your future credit card sales receipts for the advanced amount. The repayment is handled at the credit card processor's end without any need of involvement of 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 wonderful feature 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. Business owner is relieved of the stress of meeting a predetermined monthly payment since it can fluctuate 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 reputed providers to avoid unscrupulous lenders. Examine the contract carefully to make sure that there are no hidden costs or confusing terms and conditions.
The merchant cash advance industry is gradually maturing and many bigger players are making efforts to regulate it to some degree. As a result, MCA is quickly becoming a mainstream source of funding for businesses of all sizes.
