For small businesses in need of business finding, there are quite some options that are available. Before this time, small business lenders have had to depend almost exclusively on commercial banks for all forms of business credit. However, things have changed so much in the world of small business lending. This in large measure is due to the emergence of merchant cash advance lenders which have sought to provide an alternative source of business funding to small businesses in particular. Just some decades ago, there were a handful of merchant vendors in the country; the situation at the moment is somewhat impressive. From a little over hundred merchant cash advance providers, there are now more than one thousand vendors distributed across the landscape. The success of merchant lenders has motivated credit card companies and even notable firms such as PayPal to delve into the alternative lending business. Banks on their part have sought to keep up with merchant cash advance providers by coming up with online lending models that mirror merchant cash advance, or else they have attempted to collaborate with cash advance lenders that are industry leaders.
What problems in the traditional lending sector have merchant cash advance providers solved?
The success of merchant cash advance vendors is not so much surprising given that they have talked some of the problems that are inherent in the traditional lending sector. This has enabled a large number of small businesses that would not have had access to funding—at least through commercial banks—to obtain credit required for growth and expansion. One area in which cash advance lenders have proven superior to traditional lenders is that they provide loans which are unsecured. And because the inability to provide collateral which in most of the cases could be real estate is one of the reasons why small business do not easily obtain funding from banks, it is only natural that such businesses gravitate towards alternative lenders in general and merchant cash advance providers in particular. That the loans are unsecured also means that the business owners do not guarantee repayment of the advance in the same manner that they would if it involved a conventional bank loan. It also means that loans from cash advance lenders do not require a fixed payment schedule. Because of this, a business does not face any penalty if it does not meet up with payments. Although most lenders expect to recoup their funds in 18 months or less, it is the volume of the credit sales that would determine whether and to what extent that 9is achievable. And if the business fails, it simply means that the merchant cash advance provider suffers a total loss.
Cash advance lenders have also addressed the problem of credit history. Banks, for the most part, require a business to have a strong credit history which should be reflected in its credit score. The minimum credit score often required is 650. No doubt, this makes it difficult for a significant number of small businesses to obtain funding. Cash advance lenders on their part require a minimum score of 500, and this has opened up the door to more businesses that would otherwise have denied access loans. In spite of the fact that the credit score of a business is a measure of the creditworthiness of a business, merchant cash advance providers do not base their decision on whether or not to lend to a particular business on this criterion. Rather, decisions are based on the credit card receipts of the business for some previous months as well as the projected future revenue of the business. Provided that the business generates a decent amount of monthly revenue through credit card sales—at least $5000—and is considered by the cash advance lenders to be able to repay the advance in the shortest possible time, the decision to offer an advance to it would be quite an easy one.
It is also important to note that the popularity of merchant cash advance has a lot to with the speed and ease with which funds can be obtained through merchant vendors. With merchant cash advance, small businesses do not have to go through the rigorous process of obtaining bank loans. Businesses do not have to wait several weeks or months for banks loans when cash advance lenders in their characteristic manner can make funds available from a few hours to a few days at most depending on the amount in question. This speed should be expected since merchant cash advance is simply a sales transaction in which the borrowing business sells its future credit card sales to the merchant lender while committing a fixed portion of its daily credit sales to the repayment of the advance. Because of this, underwriting a merchant a loan from cash advance lenders is quite simple and straightforward.
In addition to the fact that merchant loans can be obtained very quickly, it is also known that they are much more certain to be obtained than other loans. To appreciate the certainty that comes with cash advance lenders one only has to recall that as much as 50 percent of loan applications to commercial banks end up in rejection. For whatever reason, this has always been the case, and the percentage seems to increase each passing year as more and more stringent criteria are introduced. In sharp contrast to this, merchant cash advance has an approval rate that is exceedingly high. With an approval rate of over 90 percent—this is expected since the requirements for an advance are easy to meet—a business in critical need of funds can confidently look to merchant cash advance providers and not be disappointed. Cash advance lenders, in a nutshell, has revolutionized the world of small business funding. The change brought about by merchant cash advance providers is one that is expected to remain. At present the alternative lending industry championed by merchant lenders is still growing; one can, however, expect that in time merchant cash advance will be embraced by the vast majority of small businesses when its benefits have been fully understood.