So much has changed in the way business transactions are carried out at present. The world has witnessed the introduction of electronic payment systems as well as other innovations in the business sector. The introduction of electronic payments has had a tremendous impact in the area of business lending as this is what alternative lenders leverage on.
Before this time, commercial banks have been the mainstay of small businesses that were desperately in need of business funding over the years. But for some reason, merchant business funding has become the trending thing. The reasons why small businesses began leaning towards alternative lenders have much to do with the seeming reluctance of commercial banks to issue business loans to them.
In the last couple of years, the amount of lending provided to small businesses by commercial banks has continued to decline. Bank lending to small businesses has dropped by more than 40 percent in the last decade. This figure has even been regarded by some personas as conservative, stressing the actual figure could be somewhere around 60 percent. Be that as it may, it is encouraging that merchant business funding has come on board, providing small businesses with ready access to business finance.
Why are businesses opting for merchant financing?
The major reason why small businesses are drifting away from commercial banks is simply that obtaining a business loan from banks has become strenuously tricky to the extent that it can be said business finance through banks is practically a luxury beyond the reach of small businesses. This problem has made it such that a significant proportion of small business owners no longer to banks for the financial needs. One study showed that more than 60 percent of small business owners did not bother applying to banks for loans and those that did ended up being rejected.
It has been adduced that the government regulation of banks and bank policies themselves were responsible for this difficulty in obtaining loans. Plenty thanks to merchant business funding, small businesses would have been going through an incredibly difficult period. This is something that, if it had occurred, would have had a significant impact on the United States economy being that small business play quite a major role in the economy.
Looking further in depth into the US economy, we see that small businesses make up more than 90 percent of the entire businesses in the country, accounting for the employment of half of Americans. Also, 2 out of every three new jobs are created by small businesses. These are possibly the things that merchant cash advance providers who offer merchant business finding have seen, hence their commitment to ensuring that small businesses get the required funding.
Merchant cash advance providers in a bid to make finding available to small business have ensured to eliminate some of the bottlenecks in the traditional lending sector. One only needs to take a look at the issue of collateral. It has been established that inability to provide suitable collateral is the leading reason why small businesses are unable to secure funding through traditional means.
While this issue might be of considerable importance when talking about commercial bank loans, it is irrelevant in merchant business funding. This can be rightly attributed to the reality that merchant cash advance is a sales transaction in which no guarantees are required. In effect, a merchant seeking business financing through merchant vendors has nothing to worry about about collateral or the lack of it. It is the same way with credit scores. Banks have become somewhat notorious for insisting on very high credit scores before loans can be issued to businesses.
Although there is a good reason why they do this, suffice it to say the issue of having a good credit score does not arise with merchant business funding. Because the decision as to whether a particular merchant is to be issued with an advance is strictly based on credit sales and not on some abstract criteria, little emphasis is placed on the credit score of the business.
If at all a merchant vendor is going to be taking a look at the credit history of a business, it is going to be because it wants to make sure that there is no pending bankruptcies or other encumbrances that could make the business ineligible for merchant business funding. In any case, the credit score of a business cannot be affected by a merchant cash advance transaction, regardless of how it turns out.
Benefits of merchant business funding
Apart from the fact that a business opting for merchant business funding does not have to bother about credit scores and collateral, there are other benefits that come with merchant cash advance. One of the first things most business owners consider before getting a loan is speed—how quickly the loan can be obtained. For commercial bank loans, typical waiting time could be as long as six months depending on the amount that is involved. This waiting span is exhausting, isn’t it? This is something that a business that is in desperate need of cash cannot put up with. But thanks to merchant business funding, businesses can now get hold of cash in a matter of a few days after applying.
In some cases, funds could be possibly disbursed within hours. The whole process of obtaining a merchant cash advance is one that is devoid of complexities. For example, only minimal documentation is required. A business only has to present its sales records for the previous few months before the time of application alongside with other minor documents before it can receive merchant business funding. The funds received can also be used for whatever purpose the business sees fit; there is no case of monitoring or restricting as commercial banks often do. Anyhow one chooses to look at it; it is obvious that business has much to gain from merchant cash advance.
Regardless of the fact that merchant business funding is relatively more expensive than most other forms of funding, it has proven to the answer to the sympathy-evoking cry of small business owners for quick access to funds. Little wonder the industry has been overgrowing.