Some Top Advantages of a Merchant Cash Advance Loan

Small businesses often find themselves in a cash crunch. There are very few options in such instances. One can try to borrow money from friends or relatives but there is always a question mark. There are loan sharks but it is risky. There are other options for the immediate supply of cash without any collateral.

Merchant cash advance is the best solution for small businesses like hotels, restaurants, professionals, retailers and even small manufacturers. It is a straightforward deal and one is never beholden to friends or relatives. It is cash on demand, no questions asked. The process is relatively simple and there are minimum eligibility criteria making is the best source of funding for small business owners. There are inherent advantages and the cons are only a few. Consider the advantages of a merchant cash advance loan.

Fast approval, fast disbursal

If cash is needed urgently there is no better source than this. One only need to apply online, submit a request and then the process is taken forward. Applicants usually receive cash in their bank account within 4 days of making the request provided every other requirement is met.

Minimum paperwork

Unlike banks and other lending institutions that ask for a lot of documentation, this method of funding is the easiest when it comes to paper work. One needs to submit only the bank statement for the past six months, proof of ownership of business and proof of identity and residence. That’s that.

Best for people with bad credit

People with bad credit can find themselves in a jam with no one willing to even consider their request for temporary funds to overcome their difficulties. If they go down this road, it is a reprieve and they can really get back on their feet. More to the point, their credit rating can improve with assistance from the right lenders.

Best for businesses that wish to expand or launch campaigns

Traditional lenders may insist on a solid project report to show why borrower needs funds, how they will use it and how it will help them generate revenues. Small business owners rarely have the resources or wish to pay a chartered financial specialist to prepare such papers. Going this way helps them get their hands on cash that will help them expand the business, buy equipment, modernize, give their retail store a makeover or launch periodic campaigns to rope in customers.

No collateral

One of the finest advantages that borrowers like is that there is no need to submit any collateral or guarantee. Just their personal word is sufficient to help them get their hands on sorely needed cash.

Easy repayments

MCA repayments are usually tied as a percentage of the daily credit card sales. One can just as well opt for a fixed monthly repayment. In the former case, the repayment amount is low if sales are slow and higher if the sales are high. In any case, repayment extends over one year and by that time the borrower may have used the money wisely to increase revenues.

Cons

The only cons are that the factor rate is high ranging from 1.2 to 1.5 that translates to the interest rate of 20% to 50%. But then, a non-secured loan is always expensive. Another factor is that the business should have been in existence for at least a year or so with a minimum turnover of $ 10000. These are minor niggles.

The MCA advantages far outweigh the minor cons.

Merchant Cash Advance Can Be a Great Option for an Auto Repair Shop in Need of Funds Quickly

If you own an auto repair service business and you have been looking for cash to expand, good luck. Many businesses, not just auto repair have felt the frustration of the banking woes in a way that makes it difficult for any business to get cash. Banks just aren’t lending. So little that it has turned into a major talking point for pundits, voters, and politicians on the campaign trail with many asking the gov’t to step in and somehow get money flowing to small businesses.

Banks aren’t lending for many reasons. The primary reason is the substantial losses most banks have taken by underwriting bad or risky loans. They basically lent money to people that had no business getting money. The housing market had a spillover effect that impacted the rest of the financial markets and now they are gun shy.

So what do you do if you are a small auto repair business and need to add another bay to your garage. You know this bay will increase revenues dramatically but you need the money to do it.

What are your funding options?

  1. Go to a bank. You can but the outcome will likely be no. If you go that route, expect the banker to require at least a 725 FICO and two years of tax returns.
  2. Friends and family. You may not have a partner now but you will if you take this route. Even though you only wanted a loan they will for some reason think they now have equity in your business. So unless you want a partner, think again.
  3. Merchant cash advance. This can be a great option for many businesses. It is not a loan but more of an advance of future credit card sales. These companies take a look at your credit card sales and based on what you processed in the past few months, use that as an indication of what you will do in the near future. They will usually lend you an amount equal to your monthly volume. They will take a small percentage out of your daily credit card sales to pay it back. The amount is usually between 8-25% and is typically paid back in around 6 months.

Underwriting guidelines

The underwriting guidelines for a merchant cash advance are very simple. Typically they include providing the following:

  • Four months of merchant statements
  • Four months of bank statements
  • Copy of business lease
  • Copy of driver’s license

That is about it. Some companies can have your funds to you in just a few days with much less hassle than a bank. So if you need funds, consider a merchant cash advance.

Merchant Cash Advance For a Sole Proprietor

Owning a sole proprietorship has both its advantages and disadvantages. As the exclusive owner of a business, a sole proprietor has the authority to make any and all decisions regarding the business; from the type of business to open, to the location of the business, to the name of the business, and any other decisions that may need to be made.

But being a sole business owner also puts the business owner personally at risk. In addition to receiving all of the profits of the business, a sole proprietor also receives all of the losses and assumes all of the risks of the business, which according to the Canada Revenue Agency, even extends to the owner’s personal assets, as a sole proprietor does not have separate legal status from his/her business.

These facts make applying for a business loan a very risky undertaking for a sole proprietor, considering that if the business fails, its owner may be responsible for loan repayment, and his/her own personal property may be seized.

Acquiring business financing through a merchant cash advance virtually eliminates this problem. A merchant cash advance is a great option for a sole proprietor who does not want to put extra strain on his/her personal assets. This is because, even though the business and its owner may not have a separate legal status, merchant cash advance lenders have found a way to make only the business responsible for the loan payback.

You may wonder, “How can they do this?” It’s simple, instead of requiring a business owner to make payments on a loan, merchant cash advance lenders rely on the credit card purchases processed by the business to make payments on the loan. Still don’t understand, consider this example:

Sarah is the sole proprietor for Sarah’s Cookie Shop. She has seen an unexpected rise in sales, and is finding it difficult to keep up with the demand of her customers. She realizes that she can solve her problem by making larger batches at a time. But unfortunately, she does not have the equipment to support the batch increase. She decides to invest in an industrial oven and food mixer, but after pricing the items, she is about $10,000 short. She does not want to take out a bank loan because she is unwilling to put up her personal assets as collateral.

Sarah decides to get a merchant cash advance. After she completes an application, submits the requested documentation and is approved, $10,000 is funded into her bank account. During the process, the merchant cash advance lender informed Sarah that based on her previous month’s credit card sales, and the amount of the loan she would receive, only 20% of her future credit card sales would be deducted as repayment for her merchant cash advance. Now, every time customers make credit card purchases at Sarah’s Cookie Shop, a small percentage of the sale is deducted and put towards the repayment of her merchant cash advance. Whether Sarah processes $5,000 in credit card sales on a given day, or $500, only 20% of her credit card sales go toward repayment, causing her loan payments to adjust to how well business is going.

Sarah did not have to put up any collateral, and feels secure, knowing that her personal property is safe. And with the additional increase in sales that Sarah’s Cookie Shop has seen since Sarah’s equipment purchases, her merchant cash advance is being repaid faster than she expected.

If you own a sole proprietorship, you too can find funding for your business without worrying about the security of your property. A merchant cash advance can provide anywhere from $5,000 to $500,000 in funds for the advancement of your sole proprietorship.