Whenever one speaks of alternative lending, in all likelihood one is referring to non-bank lending. One implication of this is those other lenders who even structure their lending services in the same manner as commercial banks are lumped under alternative lenders. Of course, it might be accurate to say that such alternative lenders will differ markedly from commercial banks in a significant number of ways. Whatever is the case, the essential point is that a business has to choose from among these non-bank alternatives especially in a situation where it is unable to obtain traditional financing.
What are some of the most common non-bank lending options?
Top of the list of so-called alternative lenders is merchant cash advance lenders who have made such a thing as a MCA loan commonplace in our time. Although merchant lenders represent the most dominant source of alternative financing, there are other options that worthy of consideration. Online loans, a business line of credit, as well as working capital loans from non-bank lenders, are just but a few. But a MCA loan easily stands out as the better alternative to all of this when a thorough comparison is made.
Comparing merchant loans with working capital loans
Before this comparison is made it has to be emphasized that what is meant by working capital loans are those loans provided by lenders that are not commercial banks that mirror a bank`s term loan except for the designation. This distinction is vital since merchant cash advances can also serve as working capital. Having said that we would discuss ways in which a MCA loan seems to be a better option than so-called working capital loans.
One thing a working capital loan has in common with a merchant cash advance is the speed with which it can be applied. For one leading working capital loan provider, it takes about 10 minutes for the application to be completed—a situation which is the same for merchant loans. It also takes three business days for funds to be delivered to the business once approved; this is the same thing that obtains with merchant cash advance. But, the huge difference lies in the requirement for obtaining working capital loans.
Unlike as it is with a MCA loan, a business has to have been in operation for at least two years before it can be considered for working capital loans. The business also needs to be raking in at least $100000. In addition to this, a business must have at least three employees and possess a good credit score before it can be accepted. The obvious difference between this and a term loan is the absence of collateral and guarantee. However, with merchant funding, a business with three months experience, which also makes much less than 100k dollars will be considered even with a poor credit score.
Comparing merchant loans with online loans
Online lending is also another popular choice among small business owners, perhaps, only second to a MCA loan. Although online loans take a shorter time to process than conventional bank loans, they are still nowhere near a merchant cash advance regarding speed. For a while an advance can be processed in hours or days, online lending platforms could take weeks to deliver. A business is also expected to have a solid credit score as well as minimum operation period of 2 years before it can hope towards an online loan. This is no doubt a major disadvantage.
Comparing merchant loans with a business line of credit
A business line of credit also comes close to a MCA loan regarding how quickly funds can be made available to a business if it is in need. Essentially a business line of credit is an arrangement between a business and its bank in which the bank allows the business to draw on any amount it needs provided a certain limit is not exceeded. Obviously, a business can only obtain a line of credit from its bank where a good relationship has existed in the past.
The amount a business can access is quite limited. Even at that, there is often the need for the business to provide collateral and have a good credit score before it can be issued with a business line of credit. The situation is even more serious when the lender is not a bank. In one such scenario, involving the leading alternative provider of lines of credit, a business is expected to generate at least 50k dollars in revenue plus other bogus requirements which are not obtainable in the case of a MCA loan.
A final note on merchant loans
Beyond comparing a MCA loan with other lending options, there is a need for it to be examined and assessed in its own right. Doing this reveals other benefits that come from merchant funding. Take, for instance, the issue of collateral which is not a part of merchant loans. One cannot overemphasize how much the absence of collateral requirement has enabled small businesses to have quick access to funding. Nor does one have to overlook how much it means to small businesses in general that loans can be obtained even when the credit score is poor.
Furthermore, a MCA loan has time and again proven to be the best choice when a business is in dire need of funding. For there is virtually no other lending source that promises the release of funds in a few hours. All of this forms part of the reason a MCA loan is fast becoming the number choice for small businesses—not only as a source of alternative lending but as a source of small loans in general. One cannot end a discussion of merchant loans without stating that it has removed uncertainty from the lending process.
For a while the chances of being granted funding by other lenders are always slim, that of obtaining a MCA loan from merchant vendors is almost always certain. Once the few requirements have been met, a business can rest assured of business funding.