Is a Merchant Cash Advance a Feasible Business Capital Loan?

business capital loan

A business capital loan aids entrepreneurs who are starting out, and established business owners alike to meet operational cost within the boundaries of working capital. These investments may include debt payments, rent, and payroll. Having access to this sort of a loan provides a company with flexibility to spend on growth-oriented operations than to calculate minimum level sustenance. As capital loans include covering expenditure occurring on a daily basis, these are best suited for small companies to be able to meet their financial gap. However, these loans are not to be treated as long-term loans or should not be invested in assets that may take a long time to purchase.

There are multiple different institutions that may be able to provide an entrepreneur with a business capital loan, including banks, small business loan providing organizations, working capital loan providing companies, internet investors, capital advance institutions and cash advance providers. The bank loan offers the smallest interest rates on loan returns and for well-established businesses, banks may just go out of their way to fund those businesses. However, young businesses looking for the very same cannot go to banks. Banks have a tendency to only fund businesses they know do not require them. The bank loan process is long and drastic, it takes up a lot of your time, energy and effort, and banks do tend to have very long and time-consuming processes that may take up from several weeks to several months just to provide a business owner with an answer.

Alternative Loan Options

The alternatives to bank loans are plenty, which includes a working capital/business capital loan. These loans work on a long-term financing loan option, credit line options or invoice factoring. Credit card companies also provide working capital loans, and the process of transacting from your credit cards will also allow you to earn reward points.

The point in any of these sort of loans is simple. Entrepreneurs and young businesses who are growing require access to capital investments in order to fund equipment, employees, and  at times, expansion. From day to day operations gaining a long-term asset, everything requires working capital. Business capital loans from either institution just help business owners get free-floating access to these funds. Yes, the challenge pertaining to these loans from any of the institutions apart from a bank does have a high rate of interest. On a positive note, however, the processes are much faster than the bank. This allows business owners to be able to close the financial gap and stay focused on everyday business operations. All of these business capital loan organizations tend to provide businesses with a faster and more accurate solution to finance their working capital. The steps of applications are usually simple and there are higher chances of acceptance within these forms of loan mechanisms. As these loans aim to meet a short-term financial gap within your company, multiple needs of time can be covered by these loans.

Institutions providing business capital loans to small businesses, also provide an aiding finance team who helps list down specific need requirements. The rates of return are usually charted out on a long-term basis and you can chart out how you want to use this loan. This way, working capital loans become a paid tool that can be used at any time to purchase inventory, acquire tools and hire working staff too. These lending firms also take into account that small businesses may have an inconsistent cash flow, and while their expenses can be urgent, the income may take time. Hence, these loans solve this problem by providing speeded access while a long-term payback mechanism is set. Different forms of financing options have different methodologies of payback. Plus, these companies also tend to provide businesses with a loan even if the credit history is not as ideal as it should be.

Merchant Cash Advance

Working capital is important for every company, be it big or small. Business capital loan is a tool that helps build a company’s financial efficiency for a short period of time, allowing a company to plan in advance for a long-term gain rather than worry about day to day running of the business. It is extremely important for a company to have constant capital injections, as they are critical to a business’s success.  In order to sustain their growth, a company should be able to spend on its progress. One such tool to fund this capital investment is the Merchant Cash Advance. This is one of the most feasible and potential oriented business capital loan a company can acquire, especially if it is a small company.

Merchant Cash Advance is a tool that is one of the alternatives to a bank loan. It provides business capital loans to small business owners on a much flexible and feasible process and rate. The rate of return percentage is higher than the bank, but it is convenient and faster to work with. Unlike other institutions who provide working capital loans, Merchant Cash Advance works on a fixed factoring principle. Other institutions apart from a bank who provide working capital loans tend to work on a very strict policy, despite their convenience and fast working. These institutions demand a faster payback involving larger chunks of money to be returned within a shorter time period with a higher interest rate than the bank. They do allow companies to take loans for various reasons, however, if a company has taken a loan amount bigger than their requirement, it may end up affecting the credit image of the organization further. Because the loan is being taken to fix the financial challenges of the company, it will serve its job perfectly well, but it is possible that it may take your company down a further step within the financial lockdown once the loan is paid back.

Most of the business capital loan providing institutions have a common problem that some form of collateral as a security deposit is required. The will demand a payback no matter if you are not making money, and this may even cause bankruptcy, to mention the worst scenario. This is considered to be a secured loan, as you are provided a loan after you deposit something as security that may be your factory, or some inventory, or even your personal house or jewelry. Although, collateral that you keep as security deposit may be far less than that you have to provide a bank, however, some form of the security deposit is still required.

Of course, you can choose to avoid the trouble of depositing collateral and instead decide to go for an unsecured loan. You would be surprised to know the interest rate on these loans. The longer it takes the higher the interest rate, which means, your business will be overdue on returning the loan for far more than the amount itself and may take a really long time prior to you being able to apply for another loan. Furthermore, qualifying for an unsecured loan is another ballgame altogether. Businesses with a low credit history or a bad rep have an incredible chance at not getting business capital loan. So long for the belief in young businesses and understanding their challenges.

Comparing this with Merchant Cash Advance, the process is a much more feasible one. Merchant Cash Advance works as any other cash advance system providing companies with capital advances to kick-start operations. They provide business capital loans on the basis of similar factors as other working capital providing institutions but have a unique twist to it. The Merchant Cash Advance providing firms in one way or another refuse to call their financial aid a loan. They consider it to be an advance. The provider purchases a chunk of your business’s future sales invoice, which is used to pay your dues. These invoices are based on credit card transactions only, and whenever your credit card is used for transactions, the points gathered are used to pay back your borrowed amount. The process continues until the complete amount plus the interest is paid back in full.

The Merchant Cash Advance does not have a security deposit mechanism since they are not worried about your belongings. Instead, they provide a business capital loan based on your credit sales history, which they check to predict your future sales and the time period it will take to return the borrowed finances. Which means you are not time bound to return the loan, and it is not mandatory for you to return back a fixed amount. A percentage of your sales revenue is deducted on a daily basis until the complete amount is met. This also means that only when you are making a transaction from your credit card every day you are paying back your loan. On days with lower sales, you pay back a smaller chunk, on days with larger sales you pay back a larger chunk and on days without sales, you do not pay anything.

Of course, the business capital loan provided to you, does come with interest. What needs to be considered is that the payback interest is not based on time-period related percentage increments, but instead on a factor rate. The factor rate is a fixed number, which is decided at the time of the mutual agreement, stating the amount that needs to be returned will be the loan amount multiplied by the factor rate. Next, your credit card is set up to automatic, where it deducts a percentage revenue off your daily credit card sales and pays the Merchant Cash Advance Provider unless your loan is paid back in full.

It is important for any business owner to consider these options prior to applying for a business capital loan. The Merchant Cash Advance is an incredible alternative for growing businesses, however, the choice completely lies in the business owner’s comfort. One must be well learned about these opportunities before signing an agreement with anyone of them.


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