Merchant Cash Advance- an Alternative Small business Financing
November 17th, 2010 | 
Author: Businesses are often looking for a loan. It could be for purchase of equipment, working capital, inventory expansion, renovations or perhaps an acquisition, a business will require money to finance the project. Bank loans are useful but not easy to secure. Small businesses in particular have a difficult time qualifying for bank loans because of the stringent requirements and long timelines. The downturn has also created a credit crisis that has worsened the situation further.
Some of the available small business loans are lines of credit, equipment leasing, term loans, secured or unsecured working capital loans, franchise startup loans and SBA loans. All these loans need comprehensive documentation including review of credit history, income projections, collateral, an effective management and a great growth plan. Additionally, businesses may have to apply to multiple lenders before they acquire a loan since the approval rates are not very bright.
There is an alternate loan option that could perhaps be perfect for your business if you detest the time and the documentation it takes to obtain a traditional loan or if you simply can’t wait around for weeks to get it approved. It is called business cash advance or merchant cash advance (MCA). It is definitely a more attractive alternative for small businesses with urgent funding needs. Many private companies, banks, and credit card processing companies offer such financing. The interest rate on an MCA is higher than a bank loan, but the difference is not as much as it used to be a few years ago. The paperwork involved is pretty minimal, and credit score… well, if it’s good, great. If not then it will not ruin your chances of receiving an advance though it may affect the amount of cash advance sanctioned. The approval cycle is short – from a few hours to only 3 days! And the cash gets transferred into your business’s bank account in a few days to a week. That’s just what makes MCA so popular – funding is available when needed the most.
The one prerequisite for the approval of an MCA application is a history of good credit card receipts during the past few months (minimum average of $3000-$5000) and not less than nine to twelve months in business. The merchant cash advance provider buys a percentage of your future credit card sales receipts for the dollar amount advance to you. The repayment is handled at the credit card processor’s end without needing involvement of the business or the cash advance provider. This relieves the business of having to keep track of payment dates or the payments. Another wonderful aspect of an MCA is that the monthly payment varies depending on monthly credit card sales volume and is fixed as a percentage of the same. Cash advance recipient is relieved of the stress of sending in a predetermined monthly payment since it can vary depending on monthly sales.
Since merchant cash advance is a purchase of future revenue, its providers are not regulated under financial loan laws. There is no limitation on the interest rate a cash advance provider can charge. It is best to work only with reputed providers to avoid being ripped off. Examine the contract with care to make certain that there are no hidden costs or confusing terms and conditions.
The merchant cash advance industry is slowly maturing and many larger players are making an effort to regulate it to some degree. As a result, MCA is quickly becoming a mainstream source of funding for businesses of all sizes.
