The Alternative Lending Industry and Merchant Cash Advance

alternative lending

Commercial lenders have made it difficult for small businesses to secure a loan – whether fixed or working capital. This is where alternative lending comes into play to support the finances of such businesses. The business financing options swooped in to fulfill the requirements of the companies. It is believed that every 1 in 5 small business loans will be offered by an alternative lender by 2020. The alternative lending market, as of today, stands at $5 billion, which is expected to reach $52 billion by that time.

In a report published by Randall S. Kroszner and Norman R. Bobins, it is stated “An array of crowdfunding, marketplace/peer-to-peer (P2P) lending and other online alternative finance platforms have emerged that use technological innovations to change the way people, businesses, and institutions access and invest money. Furthermore, more than 200,000 businesses turned to online alternative sources of funding across the Americas last year.”

One of the fastest growing areas of Fintech currently, is alternative loans, and yet traditional industry players have not tapped into this market. Their first option, in order to get funds, is through a commercial lender only. Thus mainstream lenders are looking for options in order to build strategic partnerships with alternative lenders that stand out from the pack.

The growing alternative lending market

In 2015, the US market originated nearly $29.1 billion in loans by alternative lenders. It is deemed as the marketplace which is one of the fastest evolving in the credit world. This suggests how rapidly the alternative lending market is growing. It can be said that more applications from small-sized businesses are declined for a loan from conventional banks. This is the primary reason for the alternative lending industry boom, as traditional lending channels are unable to provide funding to deserved applicants. This is how the industry is able to grow the marketplace each year. The providers study the insights gathered from the previous five years. In most cases, the alternative lenders offer services to:

–    Consumers who intend to consolidate their debts

–    SMEs who do not qualify as profitable by banks to grant a loan

–    Displaced students with fewer chances of payback

–    The consumers that offer risk adjustment

All of the groups mentioned above have unique business needs and requirements, irrespective of being at a low probability of default. Therefore, such businesses or consumers have started to prefer alternative lending over traditional, because of convenience. One of the most popular financing option offered by alternative lenders is a Merchant Cash Advance. It is quick, simple, and can be used in multiple ways to benefit your business. Majority of the small and medium-sized businesses and startups go for a cash advance to get access to fast cash!

Merchant Cash Advance

It is believed that businesses are now getting frustrated waiting for their loan application to be processed and approved by the banks. Moreover, the paperwork that comes with it is making business owners jittery to some extent. In short, going for conventional bank loans for your business means that you are involved in a long, cumbersome process. If you are tired of waiting, there is a solution to help you and your business!

Merchant cash advance has become the ultimate answer to all these problems. It saves your business from financial turmoil, if there is any, by providing you the capital at the time of need. As of now, a merchant cash advance has captivated the market where startups and small businesses operate. It is trying to cement its place among conventional loan providers as more cash advances are an incentive to them to manage their working capital.

It is an excellent way to fund your business’s working capital and saves you the hassle of being involved in long processes of traditional bank loans. Are you skeptical of choosing MCA over traditional bank loans? Keep reading to know how significantly it can benefit your business when it comes to growth and expansion.

We all know how expensive it is to run a business. In such instances, an extra infusion of cash can be of great help when you are going through a tough financial situation.

Whether you require funding for a new office space, purchasing equipment, or bulking up inventory – a merchant cash advance can help you in all these ways. As it is believed, you have to spend money to make money – thus, a cash advance will give you fast cash to take care of your business needs. This is the primary reason why it has become increasingly popular in the alternative lending industry.

What is it?

A merchant cash advance or MCA is a sort of funding where the Provider, such as third-party lender or credit card processor ‘advances’ the working capital you need in return for your future business income. All of it depends on your credit card sales volume. What’s more amazing is that you do not have to worry about fixed monthly payments. The MCA lender is actually buying out a portion of your future credit card receipts which will also be used for repayment purposes. The sales your business makes will be automatically deducted to pay off the amount borrowed.

Difference between a business loan and cash advance

Merchant cash advance is not a loan. Many ways differentiate MCA from conventional bank loans. The major difference is that with MCA you will repay automatically to the lender through a fixed percentage agreed between both parties. You are not bound to send monthly payments to the lender. Instead, a percentage amount will be deducted until the entire amount is repaid.

Most businesses who have taken loans from different sources have to worry about monthly payments; as irrespective of the business condition, they have to repay the fixed amount. In case of a merchant cash advance, if your business is doing well, you pay more to the lender. On the other hand, lower credit card sales, your repayment is lower as well. Hence, you are not obligated to meet a fixed payment amount – which is a big sigh of relief.

The only bad thing about MCA is that you do not have control over budgeting your month according to the weekly or monthly credit sales. However, this also comes with a good fact, as with no control over repayment, you do not have to make additional payments in interest.

If you prefer a merchant cash advance for your business, remember that there is no interest included. The profit that an MCA lender earns is calculated on the basis of the factor rate on which the amount is advanced to the business. Once decided, there is no way to change the fees.

In contrast to the loan which is carefully regulated, MCAs do not make it in the list for similar reasons. The amount provided through a cash advance is not subject to the same regulations. Therefore, the cost to access funds might be expensive, but it is a better deal than conventional bank loans.

How can you get MCA?

Once you have considered all the business financing option, including alternative lending, you have to decide which one is the right choice for your business. By now, most businesses have decided to opt for a merchant cash advance to fulfill their working capital needs. There are different ways through which you can get a cash advance as it depends on the provider you choose. It can be done through a credit card processor or a third party lender.

Either way, the following are the steps to apply for a cash advance:

  •    Consult with your credit card processor or MCA lender.
  •    Fill MCA application form online and provide supporting documentation such as processing statements to the provider.
  •    Do not accept the first offer you receive. Carefully review all the offers, check the percentage of sales for repayment, and calculate the time it will take to pay off the entire amount.
  •    Sign the agreement made between you and the provider, to accept the cash advance. Make sure that you keep a copy of the document with yourself.

MCA – The perfect solution for businesses with credit card sales

It goes without saying, considering the increasing popularity of MCA, that it is the perfect solution for all those businesses who have debit and credit card sales. Several companies suggest businesses to request an MCA from their merchant dashboard. However, in some cases, you will only be allowed to submit a request if you are eligible, i.e., have enough credit card sales to apply for a merchant cash advance. But, this does not mean you cannot get a cash advance at all. Check with your credit card processor or lender to learn more about this option.

Since 2008, the alternative lending industry has significantly increased as compared to conventional bank loaning options. A merchant cash advance plays an important role in the lives of small businesses and startups that, as of now, is their primary source to fund their working capital.

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