Top Seven Reasons of Favoring a Merchant Cash Advance Over a Business Loan
The economic slump is a daunting time for businesses hoping to get loans. However, worried businesses can look at the new financing source on the block – merchant cash advance (MCA), also called a business cash advance. It is a new avenue for business funding. MCA differs from conventional loans as repayments are in the form of daily percentage of credit card revenue. Companies can apply for MCA if they have been in business for at least 9 to 12 months and see good credit card revenue every month.
Procuring conventional loan is an uphill undertaking for SMBs as it involves drawn out processing time, strict acceptance standards, and low approval rates. On the contrary, a merchant advance can be obtained with minimal paperwork and within a short approval period. MCA works well for small businesses looking for immediate funding to a maximum of $250,000.
Below, we discuss the top seven advantages of getting a merchant cash advance instead of a regular bank loan:
1. Faster application processing: The processing of MCA does not take more than one week as opposed to the long waiting periods needed for traditional loans. A few providers approve the advance in less than one day and release the funds within seven working days.
2. No interference in how the funds will be utilized: MCA providers do not get into the hows and whys of the likely deployment of funds. It is the business owner’s prerogative to use it as she desires. The owner can use the cash for paying past due bills, catch up on tax obligations, buy inventory, fund growth, etc. or even to settle some personal bills.
3. Trouble-free application process: The saying “No pain, no gain” does not ring true for MCA. Financial institutions such as banks insist on elaborate business plans and ask multiple prying questions to understand the past, present, and future plans of your business before considering you for a loan. MCA providers are only interested in the monthly credit card sales receipts and the time in business. You should have been at least nine months in business and averaging a minimum of $5,000 in monthly credit card sales. Paperwork such as tax returns or financial statements is not necessary. There are no incidental costs or application costs as seen in the case of conventional bank loans. Online approvals are also possible.
4. High approval rate: Poor FICO scores, bankruptcies, and a not so good credit history do not disqualify MCA applicants. Providers weigh your current business performance to approve the cash advance. For instance, a business that churns out an average of $50,000 in credit card sales per month in the previous year can get approved for almost $75,000. (Calculations may vary for different providers).
5. No collateral needed as security: MCA providers cannot take over personal or business assets if the business does not continue to function as expected and the advance is not repaid. This is a major advantage for small businesses. No collateral or individual guarantees need to be staked. MCA is treated like a purchase of future revenue and not a loan.
6. Automatic deductions for repayments: Repayment of merchant cash advance is quite simple. Either the business agrees to release a prefixed percentage from its monthly credit card receipts or the credit card processor is instructed to divert the repayment amount every month. This eliminates the need to mail payment checks, and possibility of incurring fines for missed installments.
7. Repayments based on sales volume: The repayment amount changes every month based on the credit card sales receipts. When the going is good, the repayment amounts are bigger and if sale drops, the repayment amount gets smaller.
Merchant cash advance is a blessing for small businesses that do not have the ability to avail loans from banks and other financial institutions. As banks get even more tight fisted, MCA is definitely a flexible and business-friendly financing option.
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