The vast majority of small businesses rely on one form of funding or the other to stay afloat. This is because as many as 80% of small businesses are unable to raise the capital required for growth and expansion activities from within the business. It, therefore, behooves the business owners to determine the best course of action when seeking business loans. In most cases, fast small business loans are really what the businesses need. Once the business has decided that it needs to raise cash and has completed the analysis of how the cash is to be utilized in the businesses, alongside the possible outcomes, the nest thing is to determine the best source of obtaining funding.
What options does a business have in raising capital?
There are three methods that a business can adopt in raising funding. These three methods shall be explored before merchant cash advance which is the leading source of alternative funding will be evaluated. The first means a business business can use to obtain financing is in the form of equity. This means that a business can sell a part of it and provide ownership interest to investors who will then own a portion of the business by the value of that interest. Equity financing is often seriously negotiated and can include such terms as voting rights, anti-dilution rights, board membership, all of which makes it more cumbersome than fast small business loans offered by merchant cash advance providers.
What are the downsides of equity financing?
Sometimes small businesses can only obtain equity financing from friends and family. This in itself shows an obvious weakness of equity financing. Unlike merchant fast small business loans that can be obtained easily, equity financing can be really difficult to obtain, especially when relatives and friends are unable to provide support. Obtaining equity financing from external investors is, of course, more challenging and might only be possible for a business that is firmly established, a category which most loan-seeking small business do no often fit into. Meanwhile, professional equity investors are known to have some exit strategy which would enable them to recoup their investment and this might lead to the sale of the business. Fast small business loans obtained from merchant lenders, on the other hand, does not result in the loss of ownership of the business.
The method of leasing or borrowing
The second option that is open to a business in need of funding or leasing or borrowing. Although borrowing and leasing different in structure, it is useful to jointly view both as credit financing. In credit financing, a business obtains cash or a piece of equipment as is the case with equipment leasing in exchange for a documented promise to repay same at some time in the future. The traditional mode of credit financing is that obtained from a commercial bank which is giving way to fast small business loans offered by merchant cash advance providers.
The basic structure of credit loans and how it differs from merchant cash advance
The most common feature of bank credits such as term loan is that interest is charged for the amount that is issued. Also, some form of collateral or personal guarantee is required before a term loan is issued. In this regard the conventional bank loan or loans from traditional sources differ from fast small business loans from merchant lenders, in that interest is not charged nor is collateral required for a cash advance to be issued. In the case of traditional loans, if the business defaults, the lender can foreclose on the collateral. Or he could execute any personal guarantees made by the business against the personal assets of its guarantors.
Unlike commercial bank loans in which the interest charged depends on the creditworthiness of the business and the amount borrowed, the factor rate of a merchant cash advance is based on the card sales of the business as well as the amount. This is because as regards fast small business loans the criteria for judging the creditworthiness of a business is its volume of sales and not its credit score. Most merchant lenders only need to see the financial statements of the business for the previous few months and if they are satisfied the business could receive up to four times its average monthly revenue by way of an advance.
Selling of business assets to raise funds
The third method of raising capital involves a business selling is assets. A business can instead of scouting for fast small business loans decide to sell equipment that is no longer in use. It could even choose to sell contractual rights, inventory or real estate that is not tied to the working of the business. Account receivables can be sold through structures known as factoring. Furthermore, a business can sell its future receivables and this is what results in what is known as merchant cash advance. Because most small businesses do not have plenty of properties which are not essential to the working of the business, it is often the case that the business sells its future receivables to merchant cash advance companies to receive fast small business loans.
The case for merchant cash advance
A merchant cash advance is particularly useful when a business is dealing with an emergency situation. Merchant loans can be used to take advantage an unexpected business opportunity, manage fast business growth and can even be used when a business wants to avoid the negatives of other sources of funding. The benefits of merchant cash advance are quite significant. Fast small business loans from merchant vendors are often delivered in a matter of days or hours. Businesses do not also have to bother with collateral or improving their credit scores as far as merchant cash advance is concerned. Of course, a business has an extremely high chance of being approved for an advance. This and other benefits makes merchant cash advance a true source of small business funding.