As a business, your operational lifeblood is money. You need money from a broad spectrum of needs and reasons. Regardless of the reason, the business needs the funds in the first place; it must ensure that it secures funding from the right source. And the right source in this situation will be the one that offers the most value to the business.
While it is essential for a business to consider the cost of obtaining funding from a particular source, there are times when cost considerations are not paramount. If for example, a business decides on cash advance loans online then it has to come to terms with the fact that it might be a relatively more expensive option but with cost being compensated for with speed and efficiency. The main thing the business has to consider at this point is whether there the value offered by merchant cash advance justifies its cost. As far as merchant cash advance is concerned, it is easy to show just why its price is justified.
Is the Higher Cost of Merchant Cash Advance justified?
To understand why cash advance loans online are somewhat more expensive than loans obtained from traditional sources such as commercial banks, one has to embark on an outward journey looking at some of the factors to affect the cost of business funding. To this end, it has to be said that one of the principal factors that affect the cost of lending is the risk involved.
Before a commercial bank, for example, decides on the amount of interest which the business is going to pay, it has to consider the risk involved carefully. The higher this risk is perceived to be the higher the interest that is charged. In the same vein, the bank also insists on collateral to somewhat minimize the risk it bears in offering to fund a particular business. Even when the business has provided collateral having value that exceeds that of the loan itself, the bank still charges interest for the sake of making a profit—which is the standard thing to do.
Cash advance loans online providers, unlike commercial banks, do not demand collateral neither do they insist on personal guarantees before cash is given to a business. It implies that merchant cash advance providers more than any other lender take the highest risk in lending to business. What is more? There is even no strict, unbending requirement on the part of the business to repay cash advance loans online. For some reason that shall later be explained, companies cannot be legally held accountable for the repayment of an advance if it happens that the business failed and could not generate enough revenue.
When one carefully and reasonably considers the high-level risk inherent in the merchant cash advance industry, one begins to understand why a merchant cash chance is expectedly more expensive than a traditional loan. Even at that, merchant cash advance providers still try to ensure that the fixed charge that the business pays is proportional to the revenue of the business. That said let us examine how merchant cash advance loans online are processed.
What is involved in obtaining a merchant cash advance?
If a business is interested in obtaining a merchant cash advance from anyone the numerous providers in the country, it has to start out by filling out the merchant cash advance application form which can be done online. In this stage, the business discloses the amount of monthly revenue it generates since this is what the advance will be based on. It is also at this stage that businesses provide information that would help the cash advance loan, online providers to determine if the business is qualified for the advance or not.
The merchant cash advance provider often wants to know if the business has a physical location; if it has met the minimum credit score requirement of about 500, if it has been in operation for at least six months, and if it has outstanding financial obligations that could stand in the way of obtaining an advance. And if the merchant cash advance provider considers the business to have met all the requirements arrangement is made for the signing of the merchant cash advance loans online agreement.
The merchant cash advance agreement is a legally binding document which contains the terms of the contract. It typically contains the factor rate which is the amount by which the actual cash advance is multiplied. It also contains the withholding percentage. The withholding or retrieval percentage is the amount of the daily credit card sales that is remitted to the merchant cash advance provider. While the factor rate usually falls below 1.5, the retrieval rate often lies between 15 and 25 percent. That said let us look at some of the benefits of cash advance loans online.
When is a merchant cash advance the best option for a business?
A merchant cash advance is usually the best option for small businesses who find that they are unable to obtain funding from traditional financing institutions. This could be as a result of being unable to provide the required collateral or to meet the minimum credit score requirement of commercial banks. A business in this situation will find the news that cash advance loans online do not require a business to present collateral or guarantee enticing and mouthwatering.
Also, the minimum credit score required for merchant cash advance is 500 and is much lower than that of commercial banks which is set at 650 or more. On the other hand, a business might find itself in a position where it is in dire need of immediate cash—and this is quite common. In such a situation approaching a commercial bank would be of much good because of the delay associated with doing so. Instead of waiting for months to get feedback on a loan application, a business will do well to utilize merchant cash advance loans online as funds can be obtained in a few days depending on the amount involved. Above all, there is hardly any other lending source that offers the chunk of certainty merchant cash advance providers do. And, because there is a 90 percent chance that an application will be accepted, business have found merchant cash advance providers to be very reliable.