How do merchant cash advances and other alternative small-business financing options work?

Access to small business funding is suddenly back in a big way. There’s more money available for funding than there’s been in a couple years. I’m not selling anything. I don’t have any affiliation. I’m just seeing from all different sources, what’s happening in the world. And the money really is out there. It seems like a hot moment to grab it if you’re looking to launch or grow.

Merchant Cash Advances

Despite all the talk about the latest lending tech, merchant cash advances are still the leading product. New versions of it add a fixed term, a payment schedule and personal guarantees to what you get from a traditional MCA. Though credit still counts, it’s easy enough to qualify with recent healthy bank statements and fairly decent credit. Lenders’ closing lists usually mix a business lease, ID, business permit and a recent tax return. It can take about a week, depending how fast paperwork comes in.

Two years ago MCA underwriting was the same across the board, with a 1.35 factor rate the market standard. Since then, most lenders have added a gradient of programs that merit more or less funding. Today, the rates for someone with good credit and a healthy bank account can go as low as 1.20, while a lower tier can reach 1.65. These days, it’s possible to get funding with spotty credit, but the terms can be steep.

How the Repayment Arrangement Works

You may not need to switch to a new card processor to qualify. If your current processing company has a partnership with the MCA provider, you can keep your existing merchant account. Some sales reps will insist on you opening a new merchant account, claiming lower fees and more control if problems come up. However, that’s not necessary.

You can avoid needing to switch card processors by opting for an MCA that’s paid by a debit from your bank account, if you’ve had a strong positive balance in recent months. These funders take their percentage from your bank account, not your card processor.

But sometimes, when it’s not enough to have good, recent cash flow, some lenders won’t offer an MCA paid from a bank account at all. What you can ask for then is a lockbox. The benefit to this is there’s no risk of a bounced-debit. The original merchant account remains yours. (It’s what a lot of franchisees use, because they’re not allowed to have a second merchant account.)

Other Options

You have plenty of other options to choose from.

One is the merchant loan. Unlike an ordinary MCA, it’s an actual loan, based on your credit card sales history. The lender might still hold back a cut of each card sale. It may have additional payments, and will need to be paid off in full within the term.

What you’ve sold on a large online seller platform can be grounds for approval for a loan these days. Think eBay or Amazon. Kabbage is the biggest such lender.

If you need cash and some credit, look at the cash flow loans. They’re hybrid between an MCA and a traditional loan. You’ll probably pay between a 1.12 to 1.55 factor rate. Repayment can span 4 to 24 months.

When looking to get approved, begin by submitting to a short list of direct lenders. MCA providers are the obvious choice, but several other lenders are worth trying. Non-banks such as Sure Payment Solutions, Kabbage, ForwardLine and On Deck Capital are a few to consider.

So, how much money are we talking? Before long, it will be an even $1 billion that AdvanceMe, based in Kennesaw, expects to fund, in just the next two years. That’s nearly what the entire industry funded in the past two years combined.

In 2009, many business owners wished they’d secured a credit line before the money stopped flowing. Today, funds are easy and quick to get. Credit scores count less. Though it costs more than at the local banks. If you had projects planned it sounds like it’s time to act now. I’m only the messenger.