Even well run businesses can, from time to time, fall short of cash or working capital. Whether it is to grow a sales force, purchase new equipment, or fill a store with products and inventory, there are times when businesses need help to maintain their growth, or even just stay afloat. So if you find yourself coming up short, rest assured, you are not alone. In fact, according to Entrepreneur magazine, more than $50,000,000 in loans is provided, per day, to U.S. small businesses, by the Small Business Administration.
Over the last decade, both traditional banks and the SBA have tightened up on the amount of loans they give small businesses and on the eligibility requirements they use to qualify those who receive these loans. Basically, and in short, banks, either on their own, or those which use a guarantee from the SBA, want to attach a loan to an owner or partner of a business and will look much closer at the personal guarantor of the loan rather than the businesses ability to pay. Banks also want to see several years of incorporation and operating income before they even consider a loan, not to mention apply strict guidelines on what the funds are to be used for. This has left many small businesses, especially startups, without the ability to get an approval, and with nowhere else to turn.
As with any need, supply and demand rules the road, and thus, the creation of the Merchant Cash Advance. A “Merchant Cash Advance” is actually not a loan, but it serves a small business or ‘merchant’ in much of the same way; it provides quick funding to small businesses in “exchange“ for a percentage of the business's future credit and debit card receivables until the advanced amount is paid back, with interest. It’s basically a line of credit in the form of cash available for withdrawal and guaranteed by your businesses current income. A merchant cash advance can be given to a small business simply by proving that the business does, in-fact, have current receivables with a history of those receivables for at least the last three months. This is usually verified by the businesses last three months of bank statements and/or merchant account receipts. The amount of the advance and how much is received is based on overall volume. Believe it or not, in many cases, this is all you need to qualify, which is one of the reasons these types of loans are becoming so popular with small businesses; they may lack the credit, but they're successful at what they do and have the volume.
A business with $100,000.00 in receivables per month can usually borrow an entire months receivables ($100,000.00), but should expect to pay this back in about 18 months. That’s a pretty obvious indication of how large the payments are going to be considering the short payback term. A conventional bank loan could allow the borrow to take out $100,000.00, but pay it back on longer terms (60-72-84 months), but a merchant cash advance wants it much quicker, and they will often deduct their payments either daily or weekly directly from the bank account where they deposited the funds in the first place. This is the single largest disadvantage when comparing a merchant cash advance to a conventional loan. Not only will your payments be much, much higher, but the payments are automated and could leave a business in a much worse off spot then where they started if the funds do not provide for an increase in income.
So if you are getting ready to take advantage of a small business loan via the merchant cash advance process, be sure the funds to be used are going to, at least, at the end of the day, increase your overall business volume, so that you can pay back this loan under these types of circumstances. The merchant cash advance is going to help you acquire the funds you need a lot easier and get those funds a lot quicker, usually in about three business days, but be sure you have a good strategy that is going to not only maintain your current business revenues, but grow your business and help you over the long haul.
To learn even more about the process, visit our Frequently Asked Questions page.
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