How Merchant Cash Advance Addresses the Question of Small Business Loans

small business loans

If there is one thing that is common amongst small business owners at present, it is the fact that they are all trying to survive. And by survival what is meant is that small businesses are regularly competing with one another for such things as funding and patronage. For the issue of funding, it is has been the trend for small businesses to lean towards commercial banks and other traditional lending sources to meet their financial needs. However, the emergence and subsequent popularity of merchant cash advance providers have ensured that small business loans are now more accessible. While it has been the view of skeptics that merchant funding remains essentially a disruptive technology, one does not, however, have to look hard enough before realizing the immense benefits that are associated with merchant cash advance funding. Although merchant cash advance is one of the several alternative sources of lending that currently litter the landscape of the United States, it has proven to be the most effective in addressing some of the basic needs of small business. So far so good, merchant cash advance has enabled businesses to have seamless access to small business loans in a way that could not have been possible with conventional sources. But in spite of the level success that has been recorded, there are still some misconceptions regarding merchant cash advance, and it is for us to address some of those.

Merchant Cash Advance is not a loan

One of the first misconceptions that one runs into when talking about merchant cash advance is that it is often considered to be a loan and in some cases, it is viewed as a form of bank loan. This is far from the truth. For small business loans are an amount of money given to a business for a specific purpose for which there must have been a prior agreement for the business to repay the said amount plus interest over a fixed period. In sharp contrast to this definition, a merchant cash advance is a sale of the future receivables business in exchange for cash. The meaning of this is that when a business obtains a merchant cash advance from a cash advance vendor, it is in effect offering the lender a stake in its future credit sales. One further implication of this is that the merchant is under no obligation to repay the loan. Small business loans obtained through merchant funding are intrinsically tied to the credit card sales of the business. And in if the business fails or the merchant is unable to pay back the advance for some other compelling reason, the said merchant cannot be held liable.

Merchant cash advance does not automatically mean higher interest rates

When merchant cash advance is not being confused with a bank loan, it is often thought to be much more expensive than a conventional bank loan at all times. This is another misconception that is often associated with merchant cash advance. Although it has to be said that small business loans obtained through alternative lenders in general and merchant cash advance providers, in particular, tend to be more expensive, the reason for this is not far fetched from the fact that a merchant cash advance is an unsecured loan and involves so much risk on the part of the lender. In any case, the amount that is charged-not in interest though—has much to do with the projected volume of future sales as well as the individual provider. Other things being equal if the projected future sales are high, the business pays a much smaller fee for the service.

Merchant Cash Advance can be used for a wide variety of purposes.

One last misconception about merchant cash advance is that it can only be used for specific purposes in the same manner as small business loans from commercial banks. Loans from commercial banks are often granted for some specific purposes, and the banks monitor closely to ensure that the money is used for the purpose for which it was obtained. Merchant cash advance, on the other hand, can be used for whatever the business deems fit. From purchasing inventory to paying of workers and even to offsetting existing debt, merchant cash advance can be employed without undue interference from the merchant cash advance providers. Let us look at some of the things a business has to gain by opting for merchant cash advance as a source of small business loans.

Reasons why small business owners have found the option of merchant cash advance so attractive

There is hardly any doubt that one of the reasons small businesses have found the option of merchant cash advance so attractive is that it offers them about the easiest means of getting small business loans. For one thing, small businesses now have access to loans without having to go through the rigorous process of applying to commercial banks. Also significant is the fact that merchants do not have to think much about collateral since as has been earlier said merchant cash advance is unsecured. There is also no need for personal guarantees; neither is the business under an obligation to repay the advance.

One other thing that has certainly made merchant cash advance a leading choice for small business loans is that it does not require a good credit score nor does it require a strong operating history of several years. For most merchant cash advance providers a business needs only to have been in operation for 6 months to qualify for a merchant cash advance provided the business has a minimum credit score of around 500. Most importantly a merchant cash advance can be obtained in the shortest possible time, making it ideal for businesses that need funds rather quickly. All in all, a business can rest assured that its application will most likely be successful since merchant cash advance vendors have an approval rate that exceeds 90 percent for small business loans.

4 thoughts on “How Merchant Cash Advance Addresses the Question of Small Business Loans

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