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Choosing the right source of funds for high risk businesses

When it comes to starting a business, choosing the right source of funds is a crucial decision to make. The strategy is however not the same for all businesses. High-riskbusinesses, in particular, have more difficulty in raising funds than the others. The usual sources that lend money for businesses are not ready to consider loan applications from high-risk businesses. Traditional lenders and banks have a lot of restrictions when it comes to sourcing funds for those businesses that are categorized in the high-risk category.

Merchant cash advance generally comes with less paperwork than a conventional bank loan. This makes a great business funding choice for small businesses in particular. The approval rates for these are also pretty high. But then one cannot deny the fact that merchant cash advances might ultimately turn out to be more expensive than conventional funds. But, companies these days resort to these due to stringent policies laid down by the lenders in the market.

Bad credit OK loans are not easy to find:

There are certain businesses that are generally deemed high risk. Then there are those that come under the high-risk category due to one or more of the following reasons.

  • A history of higher levels of chargebacks

  • Cancellation of transactions by customers leading to the need for refund of the payments

  • If any previous lender had backed out due to a large chargeback, this would label the business a terminated merchant business

  • Subscription based services and products businesses

  • A bad credit score

In this list, a bad credit score for a business would make it appear like the business had earlier failed in the management of the finances. This would be a turnoff for most lenders. This would also make the lenders look at your business in the high-risk category. This would lead to more number of rejections in loan applications.

What should you do then?

Look for a lender for whom a bad credit score is OK! There are several bank loan alternatives today that you can pick if you have bad credit scores. Remember that there might be some of the conventional lenders that may actually agree to grant your loan. But the problems that you might face later might turn a heavy burden on your business.

  • You might be in a position to pay large interest rates. These might be several times higher than that imposed on other businesses

  • The repayment terms would also be different for these businesses and might involve stricter policies to adhere to. This might make it a difficult choice for small businesses in particular.

  • You might end up adding more collateral to the loan just because your business is a high risk one.

  • The loan processing times might also be longer for high risk and bad credit businesses.

  • And in the worst scenario, after weeks or even months of waiting for the process, you might then get a rejection.

When would merchant cash advances come in handy?

Merchant cash advances, prove to be a relatively easier option especially in those cases where you wish to get quicker funds. This particularly applies to the instances where you might be planning a business expansion and other minor additions to your existing businesses. Some of the situations where you could use merchant cash advance are:

  1. To buy new equipment- MCAs are quicker and so you would be able to establish a required setup and get all the required equipment within a short time

  2. Open a new branch- if your business is expanding into a chain, if you plan to open a new outlet or branch in a different location, MCA allows you to do this without a delay

  3. Inventory planning- to stock up on the inventory, MCAs are pretty useful. Unlike traditional funds, these can be processed easily and this allows you to concentrate more on other inventory management criteria instead of breaking your head on the funds for the same.

Why choose merchant cash advance for high-risk businesses?

  • For small businesses and startups, several merchant cash advance providers come up with a lot of benefits and incentives.

  • The creation of the merchant account, as well as the processing of the request, would take much less time as against the traditional funds.

  • The rates applicable for merchant cash advance for high-risk businesses would also be pretty lower than those imposed by the banks. This would mean lowering of the financial burden for small businesses.

  • There would often be little or no limit on the amount of funds you can receive through merchant cash advance. So even for larger funds, these would prove beneficial.

  • High-risk MCA providers might also cater to the needs of 2nd, 3rd, and 4th position businesses as well.

  • You could also get an MCA for almost any reason. But with traditional loans the purpose has to be defined.


Citi Wide Merchant Funding

300 Carnegie Center
Princeton, NJ 08540

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