If you need money now, and expect a fast return on investment, then you need a shorter term loan. But if you just want a way to build credit, and need working capital in case of emergencies then a line of credit is a great option. You don’t need to go through the process alone. You can work with your Delancey Street concierge rep who explains the loan options, and helps you understand what you need. Our concierge discusses every single step of the process, and helps highlight the strengths of your business to identify which loan is the best for you.
Cash advances aren’t loans. They are a form of “factoring,” where a lender – like ourselves, is looking at how much money your company makes – and gives you a cash advance against it. When you apply for a cash advance with Delancey Street, we only look at your monthly gross income. Typically, approvals are generated in 1-2 hours, and it’s possible to get funding in 24 hours.
Pro’s of cash advances
- Fast access to funds
- Easy approval process
- Bad credit is ok
- Great for a whole array of businesses
- Con’s of Cash Advances
Who should get a cash advance
If you need money FAST – and can’t afford to spend time dealing with the traditional lender qualification process – then a merchant cash advance is ideal for you. If you had bad credit, again – a cash advance is a great idea – because merchant cash advances are based off your income – not your credit. If you’re a new business, – again, cash advance is great – where traditional lenders might turn you down. Bottom line, we’re super flexible – and sometimes, that’s what you need.
Con’s of cash advances
- High Fees than traditional business loans
- Daily reduction of cash flow to repay cash advance
- You can’t service providers until loan repaid
Why business owners should be careful
There are “con’s” to merchant cash advances, just like any financial product. Merchant cash advances can be more expensive than a traditional loan. This is due to the fact that lending guidelines are less stringent, which makes them a more risky loan for a lender.
Merchant Cash Advances Explained
If you need working capital then a cash advance is a brilliant idea. It can help you jumpstart your fundraising efforts – and you can use the funds for virtually anything you need. You can use the merchant cash advance funds to pay for bills, equipment, or even for rent. Bottom line, if you need cash fast to fulfill expenses – then a merchant cash advance is ideal. Regardless of why you need the cash advance, it’s important to be aware of the fact there are advantages and disadvantages. After you read our article, you’ll get a great idea of:
- What a cash advance is
- The pro’s and con’s of mca
- Who a cash advance is right for
- Why business shoulders need to be careful with merchant cash advance
- What alternatives you have to cash advance when times is of the essence
How cash advances work
This is not a loan. It’s a NEW type of financial product. They are an ADVANCE, which is given based on your existing income. We give you a lump sum of money, and then you repay it over a period of days. It could be 100 days, 150 days, or 50 days. The amount you borrowed is repaid using a % of your daily gross income. For example, you might be asked to repay $100 a day, for 60 days, in order to repay your loan. The great thing about cash advances is that you’ll know exactly how much you’re expected to pay -and you’ll never be confused.
Whether your business is having a cash flow problem or just needs cash for payroll, a merchant cash advance could be a useful funding option. A Merchant cash advance is a way for you to get cash for all of your business needs. Once you apply for an advance, you can get cash in just 24 to 48 hours.
How is this different from a normal term loan?
Cash advances are based on your business sales ONLY. When you ask for an MCA, we’re looking at your credit card sales, and monthly bank deposits. We look at your expenses, and based on all of this, we figure out how much you can afford to borrow and repay! Typically, we’ll give anywhere from 100-300% of what you make in a month as a cash advance. You then repay the loan with daily or weekly payments that are automatically deducted from your account.
What are the benefits of a cash advance if you’re getting rejected elsewhere
There’s a number of reasons why a cash advance is popular. Bad credit isn’t an issue period – and you have flexible repayment plans, fast cash, and a simple process. With all of this, why would anyone not want one? It’s a useful option for owners who need cash quick.
There’s literally no collateral needed. Many banks need a personal or business asset in order to get the loan. The bank wants to guarantee they’ll get their money back if they do not repay the loan. With a cash advance, you have zero need of collateral. In addition, the cash comes fast – if you’re suffering from cash flow problem then a cash advance is a great option. After you apply, you can get the money in just 24 hours.
Are There Alternatives to a Cash Advance?
This type of funding works great if you have an established business which makes money. It’s great if you need money fast, and are open to flexible repayment plans. If you need cash, and want an alternative, we can help you with a few different options too!
Credit cards: We can recommend credit cards that might be good to help you cover your expenses.
Term loans: If you have time, you can try to qualify for a traditional term loan. This is like a mortgage, and you borrow a certain amount that is repaid over a period of time. You can get a fixed or variable rate. The APR is often lower than a Business cash advance. It takes longer to apply for a business loan though.
BAD CREDIT CASH ADVANCES
Whether your business is having a cash flow problem or just needs cash for payroll, a cash advance could be a useful funding option. A Business cash advance is a way for you to get cash for all of your business needs. Once you apply for an advance, you can get cash in just 24 to 48 hours.
Factor rates matter
Unlike a normal loan, cash advances don’t have an APR. Instead, you’re paying a factor rate. It’s a decimal point number, which represents what you have to repay to the lender. This fee can vary, but can be anywhere from 1.05 to 1.4. When considering a cash advance, it’s important to keep in mind that applying is a straightforward process, and it’s very transparent. It’s something you can do online, and you’ll know exactly what you are obligated to repay back.
The app process
It’s simple. You upload your documents online, fill out the online application, and provide 3 months of bank statements and/or credit card processing statements. You can get approved fast, and typically in just a few hours. This is great if you need money fast in order to cover your payroll, or other business expenses you have.
Credit isn’t a factor, whereas most business and personal loans require that you have a strong credit score. Most cash advance lenders are very lenient and/or ignore credit. You’re able to get a decision within a few hours and funds in 24 hours. The cash advance lender specifically looks at your income, and whether your business makes enough to afford the loan.
One of the reasons many companies accept a cash advance is because there is NO collateral to get it. Most traditional loans require some form of collateral in order to make sure you will repay the loan. In a cash advance, you don’t have to put up any personal, or business, assets, in order to get the cash advance.
Small business loans have a fixed interest rate, and fixed monthly payments. It means you owe the same amount of money every month on your loan. It’s helpful especially if you need to budget your expenses. But, some people can have an issue with a fixed monthly payment. If you have a slow month and can’t make the monthly payment – this can be a problem. With an MCA though, it’s easier. MCA repayments are a % of your daily/monthly sales. That means you don’t need to worry if your business is slow. The cash advance will accomodate that!
Bad credit isn’t an issue with a cash advance, and neither is the limit. As long as your business produces enough income, you can qualify for ANY size cash advance.
What is a Merchant Cash Advance?
A cash advance is a lending option for businesses that might not have the time or means to obtain a traditional loan. This is a direct cash advance, usually paid in 24 to 48 hours, based solely upon the company’s credit card sales. Business owners who are short on cash utilize this type of loan to get easy funding based on sales rather than their credit history and the state of the business.
This can be done quicker because the advance lender can easily review credit card receipts to determine the ability of a business to repay its loan in a timely manner. MCA providers also place different weight on credit and risk potential, allowing them to offer a higher approval rating to businesses than a traditional lender or bank. However, the rates and terms of these loans are also going to be different as a result, so it is imperative that you understand exactly what you are getting before you sign anything.
Interest, Fees, and Other Information to Know
Typically, a loan is repaid by the borrower making or setting up payments from their bank account on a structure schedule until the loan has been satisfied. However, since a merchant cash advance is repaid with credit card sales, things work differently. Instead of a loan payment, you will have what is known as “holdback”. This is a percentage of your daily credit card sales, which is determined at the time of your application and approval, that is used to repay your loan. Typical loans require holdback of between 10 and 20 percent of daily credit card sales.
The benefit to this is that repayment is based on your daily balance of credit card sales, which means you may be able to pay it off faster if you have a high volume of credit card transactions. Also, if things are slower on a certain day, the MCA provider will take less money. Essentially, you only pay back a percentage of what you bring in. This makes it nearly impossible to default on repaying a merchant cash advance, which is another great feature.
Interest rates are charged on MCAs. However, it is a factor rate rather than one that is distributed throughout the loan. Every provider is different, so talk to yours about what their interest rates are like and how they are calculated and charged so that you know what you are dealing with before you take the advance.
Is a Cash Advance the Best Choice?
Businesses that are in a tight spot can definitely benefit from a merchant cash advance. It makes sense for short-term, quick financing that your business needs. However, you have to look at the cost of the loan, including the interest you will repay, to make sure that it makes sense for your business. These advances cater to people who need quick money, so they have much less strict requirements for approval but they also come with a much higher price tag than a traditional loan.
If you are in a tight spot, this might indeed be your best option. Be sure to look at all of the options that you have for business capital when you need it to make the right choice. Also, keep in mind that this advance is not a traditional loan and that it is not reported to credit bureaus. That means that it will not improve or assist in building your business credit, so if that is part of your goal you might want to explore other funding options first. However, if you just need quick capital that you can repay on a much easier term, a merchant cash advance might be exactly what you need.
how do you calculate interest on a merchant cash advance?
Before you apply for a merchant cash advance to help you grow your small business, there are a few questions you need to ask yourself. You must also understand what this type of borrowing entails before you sign on the dotted line. A cash advance is not a loan. You do not have years to repay your cash advance. You do not make one monthly payment of a certain amount every month for years. You don’t need great business or personal credit, and you don’t need to have been in business for years, but you do need to know that you can pay interest rates as high as the triple digits. It’s an expensive way to borrow money, but it’s often the best way for some business owners to grow. That’s why you need to ask these questions.
Can You Qualify for a Traditional Loan?
If you can apply for a traditional small business loan and get that, it’s recommended this is the route you take when borrowing. A traditional loan is much more affordable, and it has more benefits than a merchant cash advance. For example, if you can get a loan, you can pay it off early without any penalties and for a lot less. When you have a merchant cash advance, there is no benefit to making a full and early repayment. You still have to pay the full amount of interest on the loan even if you don’t keep the loan longer than a month.
Qualifying for a small business loan requires meeting specific criteria. You must make a certain amount of money in your business. Your personal and business credit scores must both be good or better. Your business cannot be a young business, and even businesses that are a few years old might find it difficult to qualify for a traditional loan. You must have a business plan that the lender agrees will make you more money. If you meet these requirements, it’s better to choose this type of loan than to choose a cash advance.
What’s Your Credit Situation?
If you have good credit both personally and professionally, you will benefit. Even if you have bad credit, you can still secure a merchant cash advance. However, the rate you pay rises when your credit score is low. For example, people with bad credit still qualify for a merchant cash advance, but your interest rate might be in the triple digits. You might qualify for a merchant cash advance, but you might not be able to afford what you qualify for.
Can You Afford to Repay this Loan?
A merchant cash advance can be pricey if your credit score is low. Just because you qualify for this type of borrowing doesn’t mean you should sign up for it. The rate you pay is not like the rate you pay for a traditional loan, but this can work for you in many ways. For example, your rate and your payment are not based on a monthly payment. Your rate and your payment are made daily. You give the lender a percentage of your daily credit and debit card sales to make your repayments. This means your monthly payment for a cash advance if you choose to compare what you pay monthly to a traditional loan, is significantly higher.
On the same note, though, your payment is based on your sales. If you don’t have high sales one day, you’re making a very low payment that day. The purpose of this is to get your loan paid off as quickly as possible. A traditional loan gives you many years to make your repayments. A cash advance is typically repaid in as little as three months or as many as 12 months. It’s not a long-term lending solution.
How Much Do You Need?
Most cash advance lenders will not give you more than $250,000 for your business. If you need more than that, you are not going to find it here. However, they will give you loans anywhere from $2,500 to that point. If you need a small cash advance, you might be able to borrow even with a higher rate and still repay it quickly and in an affordable manner.
If you are going to go the route of a cash advance, you want to borrow only what you need. You do not benefit financially from having additional money in the bank if you don’t need it. Take what you need, pay it back, and don’t borrow more. Use this when you have no other options available, and then move on when you find a better way to borrow. If you can apply for a traditional loan, that is the kind of loan you want to take.
NO BANK STATEMENTS MERCHANT CASH ADVANCE
Are you looking to get a merchant cash advance, but don’t want to give up your bank statements? We might be able to help! Delancey Street understands that business owners, for one reason or another, may not be willing to surrender their statements. Some owners want to protect their privacy, and don’t want to give them. That’s not a problem.
Many business owners often give us their credit card process statement – in lieu of their bank statement – in order to show us their gross revenue. In some cases though, if you’re a primarily credit card sales based company – it’s ok to not give your bank account statements and just give your credit card statements. As long as you can provide some evidence that you generate revenue – it’s totally ok. The only situation where you will need to send in your bank account statements is if your business primarily does deposits.
Securing funding for your small business is vital with it difficult to secure funding that will not hurt your line of credit. This is especially true when attempting to find a source of cash flow that will allow you to pay for such things as:
– Basic Expenses
– General Investments
An excellent way to secure funding is with the use of a merchant cash advance. Some things to know about merchant cash advances are how they work, their benefits, and how to secure a merchant cash advance in Los Angeles with Delancey Street.
What Is A Merchant Cash Advance
A merchant cash advance is a common financing option where a financial services company gives a lump sum of money to a business. The business and financial service then enter into an agreement where financial services company will take a portion of credit or debit card sales to pay back the sum. The merchant does not charge interest on the cash advance. Instead, they charge a flat rate fee for the advance. The merchant can collect their money in a couple of ways including:
– Taking A Portion Of Credit And Debit Card Sales Split By The Bank
– Processing Payment Then Transferring The Remainder To The Business
– Debiting The Businesses Checking Account After Reviewing Processing Information
These three methods of collecting money from the cash advance means that your small business does not need to manage the repayment process. In addition, it means that the repayment process is only a small portion of sales, and you will not need to plan for a large monthly payment to the merchant.
Benefits Of A Merchant Cash Advance
A merchant cash advance has a number of advantages over taking out a small business loan
. A cash advance will not hurt your line of credit. This means that you can keep your line of credit open for major investments such as purchasing property and equipment.
A cash advance is very desirable for small businesses with little or no credit or bad credit. This is because the merchant collects money through the billing process, and so they will advance you money based upon your revenue. The merchant will often look at your clients’ credit when evaluating you for a cash advance.
A merchant cash advance is a quick way to secure a large sum of credit with merchant cash advances generally being geared towards short term funding for less than two years. This means that you can use a merchant cash advance as a quick way to secure funding for payroll and hiring.
HOW A MERCHANT CASH ADVANCE CAN HELP YOUR BUSINESS
When you want to expand your business, you will defiitely need cash. The traditional way is going to the bank and applying for a loan. Bank processes are long, tiring and require a lot of activities for one to get a loan. This is the reason why there is a Merchant Cash Advance.
How to acquire the advance
For one to get this type of advance, the process is simple. Merchant Cash Advance works quite differently from banks in that they don’t focus on personal credits rather business credits. When one wants to apply for a loan, all they need to do is to fill an online form and wait for 24-48 hrs for the loan to be approved. Once the loan has been approved, it will directly be sent to the account of the business, and the owner can access it from there.
Requirements for MCA
There are some requirements in that the business has to have been operational for at least six months and with a consistent revenue of $4000-$5000 in credit and debit sales.
Repayment of advances
The repayment of advances from Merchant Cash Advance is also different because advances will automatically be repaid from daily sales that the business makes. One doesn’t need to go back online to make certain steps to repay the loan. This is also contributed by the fact that they fund businesses that use credit cards during money transactions. This means there was a fee that was agreed during application and is charged in addition to the payment balance.
This is a breakthrough in loans since one doesn’t need to worry about loan repayment. It is automated, and as long as one is earning something a day, the loan will be repaid. This even gets better since you don’t need to worry about the loan when your business isn’t going on so well, and probably you aren’t getting anything off daily sales.
Just like other financial solutions, there are pros and cons, but it would be better to look at the pros and compare them with traditional bank loans.
MCA vs. Bank loans
Bank loans are very detailed, and this would explain the reason as to why they are very difficult to acquire — not forgetting the huge interest rates depending on the different banks. A good businessperson would evaluate the best financial solution that would not be trouble either in obtaining or repaying the loan. This then makes Merchant Cash Advance very flexible and the best option.
Benefits of MCA
There are several reasons and advantages as to why one should choose this option to the others. The first one is ease in application. As stated earlier, one doesn’t even need to go to an office to apply; all they need to do is fill an online form meaning this can be done from home or even at the office.
Time is also essential, and this solution gives the best of it. They guarantee that the maximum time approving a loan would be 48 hrs. One, therefore, can apply for a loan and before they know it, they have already been given the funds they need.
The third advantage is the requirements for application of a loan. Every financial solution has requirements to be met before a loan can be approved. One has to pick a solution that has simpler requirements as this will impact on whether they can get the loan or not.
Lastly, there is the payment of the loan. Here there is a very enticing way to repay this loan. As long as one is making sales the loan is being repaid — no need to go online to do the checking or repayment.
MCA is definitely the best solution as compared to others like bank loans. These several advantages should be reason enough for one to choose this financial solution. There is also the fact that it has been operational for the past ten years and that means it is not in its trial stages.
If one has less than perfect credit or failed to meet the several requirements of a bank, this is a solution to get the necessary cash. No collateral is needed as the loan will be approved on the basis of the profitability of the business. After an analysis of daily profitability is done, the loan will be issued.
You need to determine if merchant cash is good for your business before making the choice of using it since despite it having pros it also has cons which may affect your business if not well addressed.
HOW CAN I TELL IF A CASH ADVANCE COMPANY IS LEGIT
The cash advance industry has taken off in the last decade. It has become a very common way for, especially small businesses, to get short-term financing.
As with anything, there are advantages and disadvantages to using a financing strategy like this. Let’s break them down so you can make an informed, well thought-out decision on if and when to utilize this option.
First of all, let me explain what it is. It’s technically not a loan. It’s a cash advance where a merchant cash advance financing company, let’s call it MCA from now on for short, gives a business a big pile of cash for a larger pile of cash in the future.
To break it down, let’s say a local retail gift store on the main street of a small town is getting ready for a big festival that draws in tens of thousands of people from around the state.
In order to take advantage of the extra foot traffic and ensuing large volume of new customers, they need to stock up on inventory to meet the demand. They estimate the demand and figure out that they need to purchase $10,000 worth of goods from their various wholesalers.
Of course the problem is that they are short on cash like most small businesses. They can call up an MCA and get a lump sum payment of $10,000. In return, the MCA is going be repaid $14,000. In merchant cash advance parlance, that’s a factor of 1.4 (10,000 X 1.4).
The MCA will make $4,000 on this deal, but the retailer will make a potential of $50,000 from the selling the inventory. The retailer loses $4,000 on the MCA deal, but makes $36,000 ($50,000 sales – 14,000 repayment to MCA = 36,000) overall.
The cool part is that in order for the MCA to get repaid, they will hook up to the retailer’s credit card system and pull out a portion of each sale that is made to pay back the advance until the $14,000 is reached.
Now for the pros and cons.
There are several upsides to this deal for the retailer, as well as some downsides which we’ll go over later.
The biggest upside to MCA’s is how quickly the retailer gets the cash on hand. If he needs to buy the inventory ASAP in order for it to come in by the date of the festival, he can do that more easily with MCA’s.
Other types of financing such as bank loans, credit cards and other loans, require documentation, interviews, application forms to be filled out, credit scores to get checked and so on.
Unlike most loans, MCA’s don’t require collateral as a security for the financing company. That means you’re not risking losing your home or any other assets because MCA’s usually aren’t tied to any collateral. Here is a good resource on collateral backed loans if you’re interested in learning more.
That being said, because the MCA’s connect to your credit card system, the only way they DON’T get paid back is if you go out of business and stop making sales.
That’s also an advantage for the retailer in that the MCA’s get paid in proportion to the sales that are coming in. So if they have a light week, the MCA’s repayments won’t be as large. When there’s a good week, the MCA get’s repaid at a faster rate.
Now for the downsides to MCA’s. There are several that you must keep in mind. But if you can manage these downsides, you can make the MCA work for you.
If you looked at the earlier example of the MCA being repaid by a factor of 1.4, the retailer is paying $4,000 over time to receive $10,000 today. That’s a 40% interest rate. The cost of capital is rather high.
But again, if you have an opportunity that’s going to yield you far beyond the cost of capital and you don’t have any other alternatives, the retailer can still come out on top.
MCA’s are super quick and easy to get. That can be a good thing if you need cash quickly for a great opportunity to grow or make even more money.
It could also be detrimental if a retailer or business uses it to keep their head above water. If the cash isn’t going toward cash generating investments, it can easily be used as a never ending debt cycle system. Given the high cost of capital, this could get you into the danger zone.
At the end of the day, MCA’s can be a great source of quick cash for any business to grow and take advantage of unexpected opportunities. But there are downsides as well that need to be kept in mind if a business is going to use this as a financing strategy.
HOW DO YOU CALCULATE HOW MUCH YOU CAN QUALIFY FOR A CASH ADVANCE
Small businesses, especially those that are new, may be short on capital at some point. This is where a cash advance comes in some handily. It is probably the best option you have for quick funding for your small business when you are low on cash or when you want to improve your cash flow on a temporary basis. It’s important to understand what a cash advance is and how it works to determine if it is truly the best option for your small business’ needs.
What is a Merchant Cash Advance?
A merchant cash advance is an amount of money that is extended to a small business meant to provide it with financing on a short term basis. It is a good alternative to traditional business loans because it has less strict requirements and terms and can be acquired even if your business has a short operating history and you have less than perfect credit. A merchant cash advance is a lump sum amount of cash that is provided to a business by a lending company and not a bank or other financial institution like with a regular business loan. It can be a highly convenient option for funding your small business when you need cash quickly, but it is not necessarily appropriate for everyone.
How Does a Merchant Cash Advance Work?
A merchant cash advance is not like a traditional small business loan. Instead of serving as a loan that is required to be paid back within a set period of time and that has a high interest rate, it is essentially an advance payment against the income your business earns in the future. The amount of money you receive from the merchant cash advance is also based on your business’ sales through credit and debit cards. The provider gives you a lump sum amount that is based on your total credit and debit card sales. You pay this amount back automatically through a percentage of your business’ daily credit and debit card sales.
Generally speaking, the percentage that is paid back toward a merchant cash advance is known as the holdback or retrieval rate. The percentage can be anything from as low as five percent to as high as 20 percent depending on the amount you receive in the merchant cash advance. In addition, the terms you receive for paying the money back also vary and can be as short as 90 days to as long as 18 months. The repayment period also starts as soon as you receive the funds.
In determining how much money you receive with your merchant cash advance, the provider takes a look at your receipts from the past three to six months’ worth of receipts. Overall, a merchant cash advance can range anywhere from 50 to 250 percent of your small business’ total credit and debit card transactions.
Who Can Qualify for a Merchant Cash Advance?
Merchant cash advances are good options for the right candidates. In general, if your small business has a short history of being in operations and existence and has little to no collateral, you would qualify for one. Businesses that have a credit score that is bad or poor can also qualify as cash advance providers instead focus on your credit and debit card sales. Eligibility is generally flexible, which makes a cash advance such an attractive option for small businesses that need fast cash.
What are the Advantages of a Cash Advance for Your Small Business?
There are a number of advantages you can enjoy in getting a merchant cash advance to fund your small business. It’s worth knowing what they are if you are considering going this route for fast cash. The following are the most notable benefits:
• You don’t need perfect credit: Providers are willing to give merchant cash advances even if your business doesn’t have good credit. They are generally more flexible than traditional lenders and only concentrate on your credit and debit card sales.
• No collateral necessary: Unlike with a traditional business loan, you are not required to put up any collateral to qualify for a merchant cash advance. This means you can keep your property without worrying it will be seized to pay back the money.
• Fast: Approval for a merchant cash advance is generally fast with very little paperwork. You can also receive the funds within as little as a week.
If your small business is in need of fast collateral and you rely heavily on credit and debit card sales, a merchant cash advance might just be the best option for you. It’s important to do your homework and ensure that it is the right choice for your business funding.
HOW MERCHANT CASH ADVANCE BUSINESS WORKS
TRADITIONAL BANK LOANS OR MERCHANT CASH ADVANCE?
Due to rising demands in the business world, business owners often run out of funds. As a result, they have to find alternative means of funding their businesses. The case could be the same even for those whose businesses are steady but they want to expand them, yet they don’t have the funds to go about this process.Historically, business owners who are seeking to begin small businesses have always turned to banks to get cash for this purpose. As time moves and the business industry is becoming more technology-based with innovations finding their way in, alternative sources of income have been developed.Merchant Cash Advance is one such funding option that has developed over time. It gives quick and almost instant cash to clients. As a norm, nothing is entirely perfect. There are two sides to a coin. Likewise, Merchant Cash Advance has its advantages as well as disadvantages. So the question of concern should be as to whether advance cash is something that can be relied upon.
Let’s pay traditional bank loans a revisit
As we have already highlighted, bank loans were a popular alternative to many business owners who needed capital. But then, why are other means developing to replace or work along with this type of funding? What are the problems associated with bank loans that are making people drift away to modern funding options?
To begin with, bank loans require high levels of patience. This is because of the long and tedious process associated with the application and even approval of those loans. So much attention has to be given to the particulars of an individual. Perhaps this is meant to ensure that rogue persons don’t make the banks run a loss. But on the broader side, this process and the fact that so many qualifications are needed may bar a person from getting access to bank loans. Also, the credit might not come in handy to a person who urgently needs money.
The other problem associated with bank loans is the high-interest rates charged on the loans given to an individual. In effect, if a business does not give high returns or profits, the person accessing loans from a bank is likely to run a loss as either way the interest has to be paid to the particular bank until the loan is settled.
What is the process of acquiring a Cash Advance?
The process is very simple. The person seeking a loan simply has to have access to online services. You then fill an online form which upon submission, takes about 24 to 48 hours for it to be approved. When returning the money, the beneficiary of the service has to pay something slightly higher on the condition that the business brings in something. The amount is subject to be agreed upon before filling in the forms.
In the event that someone needs quick cash, Cash Advance is the way to go. But it must not be forgotten that this financing system has its demerits. However, reasons to weigh you towards advance loans are more convincing than those of bank loans which are actually dreading.
Merchant Cash Advance or Traditional Bank Loans?
Duration and ease
The process of acquiring traditional bank loans is manual in nature, and it, therefore, means it takes a very long time before cash is approved. On the other hand, Merchant Cash Advance only takes about 24 to 48hours. In addition, it offers a more straightforward application process as all you need is to get access to online services and you are good to go. Banks need more requirements including credit and debit cards.
As a fact, every funding institution needs personal details from the loan applicant. However, when comparing the two financing options, then it is clear that traditional bank loans require more and bulky requirements before you can finally be granted a loan. In essence, this means that many individuals are bound to be locked out of these finances. In as much as factoring, or otherwise, Merchant Cash Advance, requires particulars from clients, it is less strenuous.
Terms and conditions
The explanation beyond the fact that someone is more likely to qualify for Merchant Cash Advance than traditional bank loans has a relation with the nature of the terms. Terms of the former tend to be less strict and more flexible to accommodate many individuals, and this is an advantage.
A small business owner who is perhaps just opening a business doesn’t have to stress so much over guarantees or collaterals. In this respect, the Merchant Cash Advance stands out when compared to traditional bank loans. Many people are likely to benefit from this funding option without putting their businesses at risk.
With Merchant Cash Advance, the mode of payment is now automated, and a client undergoes no depression or difficulties. Upon making sales, the debit card is subsequently directly charged. In addition, one does not necessarily need tax returns or many documents for the application process or the approval process to be successful.
Merchant Cash Advance – Types of Repayment Options
Merchant cash advances have becoming a popular form of financing for businesses to get quick cash to pay unexpected expenses. It’s also a great way to get quick cash for unexpected investment opportunities too.
Although it’s always good to have a cash reserve for investments, sometimes there is going to be a great opportunity that you won’t want to pass up for lack of cash.
Many people get merchant cash advances confused with taking out a loan. Technically, it is not a loan. That’s important to understand from a legal perspective.
Here is how these work. A merchant cash advance provider like Delancey Street will give a business a lump sum cash amount in return for a larger amount in the future paid with future sales.
Here’s a quick and easy example. Say there’s a pressure washing company. They get a large commercial contract to wash an entire campus of a technology company. The entire contract is worth $100,000.
But in order to get this order, they have to wait 60 days to get paid. It’s called net 60 in business lingo. It’s a great opportunity, but with some short term downsides in terms of cash flow.
Basically, the problem is that the pressure washing company still has expenses they have to pay. For example, in order to do the work for the tech company, they have to employ 5 workers on the crew to do the work.
Those 5 workers are not going to be willing to wait 60 days to get paid for their work. They are going to want to get paid every 2 weeks just like most everyone else working in the industry. In total, let’s say the labor cost for this contact is $30,000.
In addition to labor, the pressure washing company will need enough supplies and fuel to fulfill the order. Again, he can’t wait until he gets paid to buy the supplies and fuel. In fact, he won’t get paid at all if he doesn’t do the work first. Let’s say supplies and fuel cost another $20,000.
Now his expenses to do the work for this contract has ballooned to $50,000. The good news is, it’s a $100,000 contract and he’s going to make $50,000 on this deal.
Again, the problem is he doesn’t have $50,000 cash on hand to pay those up front expenses for labor and supplies. One alternative is to not take the contract. That would be unfortunate.
He could also opt to take out a business loan, but that would take too long and he wouldn’t be able to do the work in a timely fashion.
Merchant Cash Advance to the Rescue
This is where a merchant cash advance provider may come in handy. The provider will give the pressure washer the $50,000 cash up front to fulfill this large order by the tech company.
For the $50K cash, the provider will receive back $60,000 total, making a $10,000 profit. The method in which this happens is the unique and interesting thing about this form of financing.
The provider will set it up so that the repayment automatically withdraws from the pressure washers credit card or debit card transactions, thereby, virtually guaranteeing repayment assuming the pressure washer doesn’t go out of business beforehand.
There are different types of repayment options.
This is when a merchant cash advance provider sets it up to automatically get a cut of every credit card or debit card transaction the pressure washer makes.
So when the tech company decides to pay the $100,000 invoice using a credit or debit card, the provider will automatically pull out $20,000. And then as other customers begin to pay using a credit or debit card, the provider may pull out as much as 20% of the sales until that full $60,000 is paid back.
Another repayment option is a trust account. It’s also known as a lock box account.
This is where all of the credit and debit card transactions would be forwarded to a single bank account controlled by the provider. Then the provider would wire out the agreed upon percentage each day.
ACH, which stands for automatic clearing house, withholding is another method that is used. In the ACH withholding option, the credit card sales information is shared with the provider and then the provider wires out the agreed upon percentage from the pressure washer’s checking account.
Overall, the Split Withholding is the most widely used and popular option. It keeps the repayments going in real-time and it doesn’t require a delay.
The real-time nature of it obviously benefits the cash advance provider, but it’s also good for the business as well. In this option, the business owner never sees the cash in any of his accounts which makes it seem like he never had it to begin with.
This new form of financing is a great way for businesses to get short term cash for their needs. It’s quick and easy to setup.
how to get a merchant cash advance
Growing your business is your number one priority. Your small business has so much potential, and your job as a business owner is to find that potential and maximize it to increase profits. When your business grows, you’re able to offer more employment opportunities, you can take care of your own family, and you provide a good or a service that benefits your community. A business owner never really quits working, and you know that it takes money to make more money as a business owner. If you find yourself in a position to grow your business by expanding, hiring new employees, or purchasing new equipment, you need the funds to do it.
When A Business Loan Fails
Unfortunately, not everyone who owns a small business is able to secure a small business loan from a lender. Financial institutions want to give you money to help your business grow, but only if you meet a lengthy list of strict lending requirements. These requirements include everything from a good business credit score to a good personal credit score to a certain amount of time in business. You have to be able to prove you can repay your loan. You must provide collateral, and many people are forced to provide collateral in the form of their own homes. This means you could lose your home if you fail to repay the loan because your business plan didn’t work.
Speaking of business plans, your business plan must be specific and details if you hope to secure a traditional small business loan. If a lender doesn’t think that your plan to grow your business and increase profits is good enough, they will deny your loan and leave you right where you started. It takes weeks, and sometimes months, to secure a traditional business loan, and not everyone has the time to wait. What happens now? You either don’t qualify for a small business loan or you simply cannot wait six weeks or longer to secure a loan, and you don’t know what to do.
Consider a Cash Advance
Have you heard of a cash advance? It’s a form of lending that allows a small business owner to borrow money to grow your business, but the application requirements are a lot more lenient than they are for a traditional business loan. A merchant cash advance is typically funded in just a few days rather than weeks or months. You can have your money in hand within days of submitting your application.
This is money you borrow from a lender who wants you to make repayments in a non-traditional manner. For example, you don’t make a monthly payment every month to repay a merchant cash advance. You make a daily repayment, and that payment amount is based on the amount of credit and debit card sales you make that day. Merchant cash advance lenders take a portion of your everyday sales via credit and debit cards for repayment, and the amount fluctuates daily based on your sales that day. If you don’t make many sales, your payment drops. If you have a great sales day, your payment is higher that day.
A merchant cash advance also takes less time to repay. A traditional loan is repaid monthly over a set number of years as agreed upon in the application process. A merchant cash advance is repaid for approximately one year. Some people can repay the loan faster based on high sales, and some people need a little bit more time to repay their loans. What you should know about your cash advance is that you might pay a lot more to repay this loan even though the repayment period is significantly shorter. Interest rates can reach well into the triple digits depending on your application.
Is A Cash Advance the Right Choice?
Most people ask this question thinking that funding in a few days is too good to be true, and that’s because it is for some people. If you have a high credit score and you’ve been in business for a while, you should try to take out a small business loan first. If that doesn’t work, a merchant cash advance is the best option for you. It’s not the first option for many business owners because it is an expensive method of lending. You should only apply for a merchant cash advance if you have no other options.
Before you borrow anything from a cash advance lender, be sure you read all the fine print associated with your loan. You must know what you’re getting into before you sign the agreement. If you sign something you don’t know how to handle, you could end up in more debt and find yourself unable to pay it off. This is a form of lending that can benefit you and your business if you’re borrowing for the right reasons.
The growth and sustenance of a small business depends on the cash flow and starting capital. Therefore, a cash advance provides some money in advance against the basis of credit card sales which shall undergo processing in the future. It’s not a loan, however, the merchant providing the money shall assess the number of credit card sales you have had in the past and process the sum they give you as an advance on those sales.
The lump sum amount is automatically repaid daily, and a certain percentage is charged denoted as `Holdback.’ This amount is dependent on the period of repayment, the amount of credit card sales, the magnitude of your advance and the size of the business. Usually, the repayment period spans over a certain period, and they begin as soon as the money is received.
Merchant cash advance are not suitable for every caliber of a business. Although they are most appropriate for the business that requires quick access to cash and has solid credit card transactions history. Henceforth, they are a seemly fit for a new company that has streamlined cash flow such as restaurants that have not been in operation for long periods, but have a stable income.
Nevertheless, a merchant cash advance is not considered as a loan because it’s not assigned a termly percentage rate, instead the business proprietors pay a `factor rate’ agreed upon on collection of the funds usually ranging between 1.1 and 1.5 expressed in decimals. This makes the merchant cash advance look appealing. However, it’s important that you consult a financial advisor to assist you in understanding the often misinterpreted factor rate. The keynote is to negotiate a lower holdback amount that will be sustainable in the long run at the end of the year be able to balance the annual percentage rate.
Advantages of a Merchant Cash Advance
There several features associated with cash advance that seem to attract more and more business owners. They include the following:
Funds are Processed Rapidly
When your business is in urgent need of cash injection, the cash advance provides a fast option of approval for the funding. The lump sum amount is processed as fast as within 24hours, enabling you to fund impending business obligations.
They do not discriminate on Credit Score
Even though the lender uses credit card sales to assess the span of your business, they are a bit more relaxed on the credit rating or other core factors that most business loan providers may consider before approving the loan. In fact, a merchant can advance the cash even if you are carrying another debt. It’s important to note that they do not add to your credit score rating.
Collateral is not a Requirement
Most loans from financial vendor’s source for security against borrowed funds in the form of insurance in case you default on the loan. Merchant cash advance is unsecured and does not require any collateral to be put on the line.
Substantial Borrowing Limit
Depending on the merchant, you can be able to access higher borrowing limits according to your understanding between the business owners. Thus, it becomes apparent that the amount is relevant to change, and the payments are flexible, enabling business owners to operate conveniently.
In light of these benefits, the cash advance becomes a viable option for most business owners. Nonetheless, there is also a downturn to the cash advance.
Con of the Merchant Cash Advance
The benefits are numerous and certainly outweigh the drawbacks. Although, the main downturn of merchant cash advice is that if you are not careful and become susceptible to higher holdback payments, the gains will be less than the projected outcomes of the business. Hence, it’s essential to have calculated the expected income generation before engaging the cash advance.
The cash advance is a reliable capital provider for business owners that deal in fast moving goods and retail since it offers cash fast and enables the venture to remain afloat. However, there are other forms of funding that you can consider especially if you have an excellent credit rating. Nevertheless, the above option is an excellent choice with the right management and understanding of the principles behind the proper administration of the borrowed funds.