With an increasing number of banks either ending their small business lending or placing more and stronger restrictions on access to small business loans, it should come as no surprise that business owners are turning to other sources to find the working capital needed to grow their companies.
Many alternative funding sources exist, including equipment lease-back plans, co-op funding, and private investors, but the funding source that is attracting the most attention is the merchant cash advance.
What is a cash advance? It’s actually exactly what it sounds like: you, the business owner, provide proof of a history of credit card sales, and in return a merchant capital funder advances you a sum of money, based on future sales. You then repay the loan by giving the funder a percentage of every credit card sale you make (anywhere from 5 – 20%) until payment is complete.
If this payment plan seems overly strict, consider that with a regular loan, payments are fixed. You’ll pay the same amount every month, no matter what your net income is. With a cash advance, however, you’ll pay less in slower months and more in months when business is booming. It does balance out, but it also means that you’re not straining the company coffers to make a specific loan payment.
If that sounds like just another kind of loan, consider the following:
* Merchant cash advances are unsecured. Payment is guaranteed by either moving your credit card processing to a company affiliated with the funder, or by placing an electronic “lockbox” on your credit card machines.
* Your credit history is irrelevant. As long as you can prove a track record (generally six to twelve months) of credit card sales, you and your business can qualify. Credit reports are generally not even run.
* The process is quick. Most cash advance lenders approve applications within 24 hours, and funds are typically disbursed within 72 hours after that.
* Unlike small business loans, roughly 90% of merchant cash advance applications are approved.
It’s easy to see why small retailers and restauranteurs (two of the most common kinds of applicants) are turning to merchant cash advances, but what about businesses that don’t do much credit card volume? Owners of those types of businesses need not fret; most cash advance lenders offer a variety of products, from the credit card advance mainstay to invoice advances and ACH advances.
Small business loans may never completely disappear, but in a market where they’re increasingly difficult to obtain, and expensive to repay, merchant cash advances are the logical choice of alternative funding, and are fast becoming more “mainstream” than truly “alternative.”
This helpful article was kindly sponsored by Merchant Cash in Advance.