As the economy inspires more and more people turn to entrepreneurship, the need for a reliable source of small business funding is also on the rise. Traditional lenders such as banks have tightened credit in the past years due to the bad economy, so cash-strapped entrepreneurs turn to other alternatives to solve one crucial problem – finding cash. While commercial banks have begun to put restraints on their financial support of small businesses, development companies, micro lenders and merchant cash advance providers opened their doors, filling the void and helping entrepreneurs gain access to cash.
Small businesses such as restaurants, medical practices, dental services, and more who are looking for alternative sources of business capital are now able to secure additional cash quickly without having to offer any collateral. This makes cash advances distinct from bank loans, which can put a strain on your personal finances.
What exactly is a merchant cash advance?
A merchant cash advance (which is also called credit card factoring) is a financing option that has begun to gain popularity in the small business funding arena. It involves the purchase of a portion of the merchant’s future credit card receivables at a discount. Every time the merchant receives payment from customers via credit card, a portion of the sales is forwarded to the cash advance provider electronically until all of the purchased receivable is repaid back. A merchant cash advance, however, is not a loan for the following reasons:
The MCA provider requires no personal guarantee or collateral from the merchant. This means that the provider risks losing its investment if the merchant goes out of business. This is one of the reasons why merchant cash advance providers have a minimum set of requirements before doling out a cash advance. These are, generally: The merchant has been in the business for the past year; The merchant has at least fifty (50) credit card transactions every month; The merchant has no outstanding rental obligations and has at least a year remaining on its lease, and; The merchant has no open bankruptcies or foreclosures. Merchant cash advances have no fixed repayment schedule. Repayment follows the merchant’s daily card sales volume. In other words, the provider receives higher repayment amount when merchant sales are up and receives a lower repayment percentage when merchant sales are down. There is no late payment, thus, no additional charge or penalties as opposed to a fixed-term loan where a fixed dollar amount must be paid on or before its due date regardless of the merchant’s sales volume. There is no business-use restriction. The merchant is free to use the cash advance to pay for any business related expense – purchase of additional inventory, new equipment, paying off debt, office remodeling or emergency subsidy among others.Most reputable merchant cash advance providers can qualify a business for a cash advance quickly and easily, so the funding can be made available in only a few days. The application process is quite simple. No tedious paperwork and no credit score or credit check involved. Apply for a business cash advance now and hear back in 24 hours.
