The emergence of fast merchant cash advance, as well as its remarkable consolidation in the lending sector, now means that small businesses have a viable alternative to commercial banks when it comes to the issue of seeking business funding. There are several reasons a business might need external funding. It could be because the business is seeking to expand or take advantage of a sudden increase in demand and wishes to boost production levels to meet up with this demand. It could also be that the business is embarking on purchasing a new piece of equipment which might help to increase production as well.
Better still, a business might need external funding to purchase inventory, meet payroll obligations, carry out a construction project, or even to consolidate existing debt. In each of these situations, a business might not be able to raise the required funds from within the business. Indeed, dutiful surveys have revealed that around 80 percent of small businesses rely on one form of financing or the other.
Before the tremendous spike in the number of thriving merchant cash advance companies, commercial banks have previously presided carefreely over the lending scene, being practically the only source of funding for businesses. But in recent times the state of bank lending to small businesses is one can best be described as pitiable. For on the last couple of years bank lending to small businesses has been on a steady decline.
Ironically, there has been an increase in bank lending to the big business. Would you say this is prejudice against small businesses? You wouldn’t be too wrong if so. While it might be difficult to pinpoint what has been responsible for this decline, a good guess might be that it has something to do with a global ailing economic, during which banks had to be very cautious of lending to small business.
However, in spite of the fact the United States continue to sparkle economically, the attitude of commercial banks to small businesses which are supposedly the pillar of the economy did not improve; instead, it worsened. Had it not been for fast merchant cash advance providers, the situation could have been worse for business owners who have been well malnourished of funds by traditional banks.
However, as of now, small businesses have begun to realize the potential of the alternative lending industry driven by merchant cash advance providers. This fact alone has caused commercial banks to sit up, understanding that for the first time they might have to compete for the interest of small businesses. Of course, it cannot be said that there are no clear-cut reasons why small businesses are gravitating towards fast merchant cash advance vendors. Indeed, there are some reasons for this—and that is precisely what we wish to examine.
Uncovering what a merchant cash advance entails
A merchant cash advance is a form of lending where the borrowing business transacts its future receivables to a lender in return for a defined sum of cash. When a business sells its future receivables to a fast merchant cash advance provider, it does so at a discount procuring a situation where the lender can earn a profit for the service rendered. Precisely, it is a not a loan in the conventional sense of the word; a merchant cash advance is repaid—there is no easier way to put it—only with the credit sales of the business.
For this to happen, deductions are made from the daily credit sales of the business and transferred to the merchant cash advance provider. All of this is facilitated by the credit card processor of the business, which in some cases might be the fast merchant cash advance provider. Whatever is the case, these daily deductions continue until the cash advance has been fully repaid. This is to say that the amount that is deducted is a fixed percentage of the daily sales, meaning that the business gets to pay more when sales are higher and less correspondingly with the states of sales.
This percentage known as the withholding amount is dependent on the amount that is borrowed and the volume of the monthly sales of the business. While the total amount the business gets to pay back is the actual amount plus a fixed fee which comes in the form of factoring—factors are typically less than 1.5. Now that we have understood what a fast merchant cash advance is, we shall continue our examination of why businesses are drifting towards merchant providers.
Let us, therefore, peer at some of the reasons why a merchant cash advance is desirable to small business owners.
A major reason for the shift towards merchant funding is because it offers a flexible lending option to small businesses. Just about everything in a merchant cash advance cd transaction is flexible. Think of the flexible payment terms, the flexible payment period, and the fact that the business is under no obligation to repay the advance in the first place. When it comes to funding there can be only a few things that trump flexibility from the perspective of small business owners—and this is precisely what fast merchant cash advance provides.
One other reason why small businesses are drifting towards merchant cash advance is that merchant vendors have the process of obtaining small business loans as easy as possible. One can only imagine the amiable convenience small business owners must feel knowing that they do not have to worry about such things as collateral and personal guarantees before obtaining business funding.
With fast merchant cash advance, businesses do not have to provide collateral nor do they have to have a good credit score, in most cases a merchant cash advance vendor will only require a score of about 500 before issuing funds.
Of course, there is no way one can talk of the reasons why small businesses are opting for fast merchant cash advance without discussing of speed, ease and approval rates. In the area of speed, merchant cash advance has proven to be one of the fastest means of obtaining business funding with funds being evaluable in less than a week depending on the amount that is being sought. Also, merchant cash advance is quite easy to obtain, easier than a bank loan by far.
For a cash advance, only a few documents are required, just enough to establish that the business is generating enough revenue. Finally, businesses are leaning towards fast merchant cash advance because it is the surest way of obtaining funds in times when funds are needed urgently. Being that approval rates for merchant cash advance are over 90 percent, small businesses surely know where to look when in dire need of cash.