There are a couple of situations in which a business will need external funding. These situations arise because a vast majority of companies are unable to provide funds required for capital-intensive projects within the business. That being the case, the practice of seeking loans from commercial banks and other lending institutions is something quite reasonable in the business world. Although there are several options when it comes to the issue of business funding, a significant portion of small businesses in particular still grapples with how to obtain a small business loan. The problem here is not that lending sources are not in abundance; instead, it is that business finance has been virtually out of the reach of small businesses for some time, except for the recent intervention of alternative lenders such as merchant cash advance providers. There would have hardly been a better time for alternative lenders such as merchant cash advance to cement their place in the lending industry if not now that commercial bank lending to small businesses has so much declined. Business owners who know just how to obtain a small business loan when it is much needed have realized the immense benefits that come from opting for a merchant cash advance in place of a commercial bank loan. Before delving into details of how a merchant cash advance is ideal for a small business, let us look at the process involved in merchant funding.
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What does a merchant cash advance entail?
First and foremost, a merchant cash advance is not a loan in the traditional sense of the word. But just like a loan, it provides funds to businesses which are in dire need of finance. Businesses who wish to know how to obtain a small business loan from the alternative finance industry have often made merchant cash advance providers their first point of call because of the simplicity inherent in the merchant cash advance process. A merchant cash advance is essentially a commercial transaction between two business entities, one of them the merchant in need of business funding, the other the merchant cash advance provider. It is a transaction in which the business pledges a portion a portion of its future receivables in exchange for an advance. This definition stands in sharp contrast to what a conventional bank loan is. For a loan is not tied to the future sales of a business as such; rather it is s transaction in which a particular amount of money is given to a borrower who pledges to pay back the same plus some interest at some specific time in the future. From this definition, there arise some key differences been a loan and a cash advance. The first is that there is nothing a merchant cash advance agreement that suggests that the business promises to repay the advance unconditionally, a fact the merchants who know how to obtain a small business loan from merchant cash advance providers know too well. They know that they are not liable to pay back the loan if their business fails.
In essence, a merchant cash advance by definition is only repaid with a fraction of the credit card sales of the business. Another difference between a cash advance and a conventional bank loan has to do with interest. While banks typically charge interest on loans—the rate of which depends on the amount that is involved as well as the perceived risks; merchant cash advance vendors only charge a fixed fee for their services. The cost is introduced in the form of a unique factoring method that could lead to a business paying between 10 to 50 percent of the amount that is borrowed as service charge. The last significant difference between a merchant cash advance and a conventional loan is that there are no fixed terms in an MCA transaction, as it is with commercial bank loans. Business owners that are aware of how to obtain a small business loan through merchant cash advance providers have always considered this to be to their advantage. The absence of fixed terms ensures that a business does not suffer penalties if it is unable to complete the payments at the time expected by the merchant vendor. In the same vein, the company is not offered any reward if the payments are finished much earlier than expected probably as a result of a surge in sales.
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Steps in Securing Merchant Funding as well as benefits if doing so
The first step for businesses who wish to know how to obtain a small business loan from merchant cash advance providers is to fill out a merchant cash advance application form. As soon as the form is received by the merchant lender, the application is then evaluated, and this takes just a few days to conclude. If the merchant cash lender is satisfied with the business, negotiations begin for the signing of the merchant cash agreement. The merchant cash advance agreement is a legally binding document which contains the terms of the offer. A business that already knows how to obtain a small business loan from commercial banks usually has no problem understanding a merchant cash agreement. The only new terms might be the factor rate which was explained earlier, and the retrieval rate which is the percentage of the daily credit card sales of the business that is committed to paying the advance. Having said that, once the cash advance agreement is signed, the advance is then issued to the company and payment continues on a daily basis until the advance has been repaid.
One of the most significant benefits of knowing how to obtain a small business loan from merchant vendors is that the business avoids all of the hassle associated with bank loans. Just as the rigorous documentation involved in standard bank transaction is prevented, the considerable time delay is also avoided. From having to wait several weeks to obtain funding, a business could get funding in less than one week. From battling to meet the credit score requirement of commercial banks, a company no longer has to worry about having a poor credit score. A business that has found how to obtain a small business loan from merchant cash advance providers has nothing to worry about collateral and personal guarantees. Above all, if a business is in dire need of cash and cannot afford rejection, it will do well to opt for a merchant cash advance since the approval rate is exceptionally high—over 90 percent. It is a choice that small businesses are now beginning to embrace, and the result of doing so has been instant access to business finance.