New Jersey Merchant Cash Advance Company[yoast-breadcrumb]
New Jersey Merchant Cash Advances
Most businesses often fall into cash flow problems because they need to pay bills on time even when their clients have not paid on time. As such, most of the businesses affected by cash flow problems offer credit to their clients. The business may have successful sales, but the customer does not pay immediately. This forces the firm to look for sources of cash to pay current bills as they wait on their customers to pay. Many financing options are available to such companies with the common ones being bank loans, overdrafts, business credit cards, and merchant cash advances.
For the sake of this article, we are going to focus on merchant cash advances. A merchant cash advance is a loan that is usually available to a business that sells to its clients using credit cards. A merchant cash advance, therefore, can be defined as a cash advance given to the firm based on its credit card sales.
The merchant pays a percentage to the lender from the daily proceeds of the merchant accounts. What are the benefits of merchant cash advances?
1. Easy application process
The application process for a merchant cash advance is straightforward. The lender first evaluates the borrower’s credit sales report of the last few months, usually two to six months. The average monthly credit card sales are then used to determine how much the business qualifies for. The process can also be done online by applying online and uploading the necessary documents.
2. Fast turnaround time
One of the critical benefits of MCA is the quick turnaround time. The approval process is usually fast because the lender only considers the average monthly credit card sales amongst a few other details. MCA are typically processed within a few hours and the money deposited as soon as the approval process is over.
3. The credit score isn’t factored
Because these loans are based on average monthly credit sales, the borrower’s credit score is not considered. This helps many businesses with low credit score secure loans that they could not have accessed traditionally.
4. No collateral
In merchant cash advances, there is no requirement for a guarantee. This enables many businesses without collateral and assets to obtain financing.
5. Flexible payment
The amount payable each month depends on credit card sales. This helps the business because the amount repayable is only a fraction of the monthly sales and not a fixed amount.
6. High limits
MCA usually offers clients more than they can qualify for in a traditional loan setting. This helps the business to access more finances.
Who can qualify for a merchant cash advance?
Usually, most business can qualify for these types of loans as long as they have credit cards sales and have been in business for a reasonable amount of time. MCA is usually good for new businesses that do not have a good credit history and can’t qualify for traditional loan programs.
MCA does not attract APR; instead, their interest is known as a factor rate. The rate is a decimal figure that represents what the business will repay the lender. Most common factor rates range from 1.1 to 1.5. To get the amount which will be repaid, you multiply the factor rate with the money borrowed.
The factor rates should not be confused with interest rates because they are very different. Factor rates may seem low, but they are usually very high when you compare them with prevailing market interest rates.
What are the available alternatives to merchant cash advances?
A business that does not want to acquire a MCA but still is looking for financing option can explore other avenues. These avenues include business credit cards and term loans among others.
A holdback is a fixed percentage of the daily credit card sales that a MCA holder remits. These monies are used to repay the loan and range from 5 to 20 percent of the daily sales. The difference between a factor rate and a holdback is that the factor rate is the interest rate while a holdback is the percentage of daily sales repayable to the lender.
Although they are expensive, merchant cash advances are good for businesses that need fast cash and cannot access other forms of lending.
As you probably know, there are often situations that occur when running a business that require immediate access to capital. One of the main reasons why small business owners consider merchant capital is because it provides fast cash.
Whether it’s an unexpected expense that your business has incurred or a potentially high value growth opportunity, it’s not uncommon to need funds right away. In this type of scenario, you typically don’t have the time and energy that it takes to apply for a small business loan. This is the kind of situation in which you can use merchant capital advances. Within just a couple of days, you can be approved for the amount you need, up to $250,000. Just keep in mind that merchant capital is often expensive, which means you’ll have to decide whether having access to capital quickly is work the high cost. Sometimes a merchant cash advance makes sense because you’ll only have it on your books for a short timeframe.
Anyone who has taken out a small business loan knows that the process can be complicated and sometimes overwhelming. There’s also the very real chances that you won’t qualify for the loan after you have put forth a significant amount of time and effort. A key benefit of a merchant cash advance is that you could very well be a good fit, even if you don’t meet business loan requirements. Although on the surface it might sound hard to believe, the fact of the matter is that your credit is not as significant with a merchant capital advance. Even if you have bad credit, you can still qualify.
If you’re familiar with SBA loans, then you know it’s difficult to qualify unless you have stellar personal and business credit scores. Quite frankly, even then you might run into obstacles with getting the loan approved. Fortunately, there are products on the market that can help you get the funds you need, and a merchant capital advance is a great option.
One of the main factors involved in qualifying for a small business loan is how long you have been in business. Typically, lenders want to see that your business has been in operation for at least a couple of years because this demonstrates your ability to overcome the obstacles associated with running a business.
The Small Business Administration has reported that less than 50% of small businesses last 5 years. This is one of the main reasons why it’s difficult to get a traditional loan or an SBA loan if you haven’t been in business for years. That’s not the case with a merchant cash advance. They typically require you to have been in business for a minimum of 5 months. Even if you’ve just reached your 5 month anniversary, there’s a chance that you will qualify for a merchant cash advance. Since repayment is from your sales, they’ll want to see that you have at least $100,000 in revenue.
The issue of collateral is one that can cause trepidation during the lending process. Either you don’t have appropriate collateral or you don’t want to offer your house, business inventory or car to secure a loan. Lenders simply want to make sure they have another recourse in the event that you go out of business. When applying for a small business loan, you may not have a choice, but that’s not the case with a merchant cash advance. Essentially, if your business is unable to pay the money back, there are limited legal options for the merchant capital provider. However, in order to mitigate this risk, a merchant cash advance without collateral is considered high risk and will typically charge a higher APR.