How to obtain financing for a small or medium business
As more and more people turn to entrepreneurship, access to business finance is also increasing. Traditional lenders such as banks have tightened credit in recent years, so cash-strapped entrepreneurs turn to other alternatives to solve a crucial problem: finding cash. As commercial banks squeezed their financial support for small businesses, development companies, microlenders and merchant cash advance providers opened their doors, filling the gap and helping entrepreneurs gain access to cash.
Small business owners, such as restaurant operators, dental providers, promotional product owners, and other small business operators looking for alternative sources of business capital, can now quickly raise additional cash without having to post any collateral. Businesses such as cash advance providers offer such services and are preferred by more business owners.
What exactly is a business cash advance?
A merchant cash advance (or MCA, also called credit card factoring) is a financing option often used by small and medium-sized businesses. This is the purchase of a portion of the merchant’s credit card’s future accounts receivable at a discount. Every time the merchant receives a credit card payment from customers, a portion of the sales is sent to the MCA provider until all purchased receivables are repaid. However, a business cash advance is not a loan primarily for the following reasons:
* The MCA provider does not require personal guarantee or collateral from the merchant. This means that the provider risks losing their investment if the trader goes out of business. This is one of the reasons why providers have a minimum set of requirements before doling out the money. These are:
- The merchant must have been in business within the last year;
- The merchant has at least fifty (50) credit card transactions each month;
- The merchant has no outstanding rental obligations and has at least one year remaining on their lease, and;
- The merchant has no open bankruptcies or foreclosures.
* Merchant cash advances do not have a fixed payment schedule. Rebate follows the merchant’s daily card sales volume. In other words, the provider receives a higher rebate amount when business sales increase and receives a lower rebate percentage when business sales decrease. There is no late payment, therefore no additional fee or penalties compared to a term loan where a fixed dollar amount must be paid on or before the due date, regardless of the merchant’s sales volume.
* There is no restriction of commercial use. The merchant is free to use the money for any business-related expenses: purchase of additional inventory, new equipment, payment of debts, office remodeling or emergency subsidy, among others.
Most reputable MCA providers, like Entrust Cash Advance, can qualify a business for a cash advance quickly and easily. The application process is quite simple. No tedious paperwork and no credit score or credit check involved. You just have to choose the right provider.
