One of the most popular ways through which businesses acquire financing nowadays is through cash advance loans online. There are several reasons why small companies are turning to merchant cash advance and other nontraditional sources of funding. The reasons have so to do with the fact that bank loans are becoming very difficult to obtain especially in the present time. There has been a rapid decline in bank lending to the small business sector especially since the end of the recent economic downturn. With bank lending to small businesses declining by as much as 60 percent in the last cou0ple of years, it is undeniable that small businesses have a need more than ever before to secure funding from alternative sources.
. Small businesses in particular need to have access to business funding considering their immense importance in the economy. If for any reason small businesses have a hard time surviving, its impact on the economy is something that would be most devastating. It is why merchant cash vendors providing cash advance loans online have foreseen, hence their commitment to ensuring small businesses have ready access to business funding. Although there are a bunch of alternative lenders that offer loans to small businesses, merchant cash advance providers have in any case stood out from the crowd. As a result of this, it is merchant cash advance vendors that shall be the focus of our discussion.
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What is a Merchant Cash Advance?
The first thing anyone has to know about cash advance loans online is that it is not a loan in the traditional sense of the word. Apart from the fact that the underwriting process is somehow automated through the use of robust algorithms, there are still other significant differences between a cash advance and a bank loan. Before looking at some of those things, it is important we give a precise definition of merchant cash advance. A merchant cash advance is primarily a commercial transaction between a business owner and a merchant cash advance provider. In this sort of deal, the business which is referred to as the merchant agrees to sells a portion of its future credit card sales to the merchant cash advance provider in exchange for a lump sum of money that is to be used in financing the business in one way or the other.
A loan, on the other hand, is s transaction between a business and a lender in which a certain amount of money is issued to the companies, an amount which the corporation agrees to, and is expected to pay back along with interest at some specific time in the future. Unlike cash advance loans online, commercial bank loans have fixed terms of payment. A bank loan has a particular frame of time for the payment of the loan; a merchant cash advance has no fixed deadline. Speaking of bank loans, it is possible for a business to be punished if it is unable to pay back the loan at the agreed time; it can also be rewarded in the form of lower interest rates if it can pay back the loan earlier than expected. It is in sharp contrast to what obtains in a merchant cash advance transaction in which the business does not even agree to repay the loan unconditionally. What this means is that cash advance loans online are tied to the credit card sales of the company and if the business fails the merchant cannot be held responsible for the loan. One more thing that has to be said is that a merchant cash advance does not attract interest in the first place. Merchants are only required to pay a fixed charge in the form of a social factoring for the service.
What qualifies a business for cash advance loans online?
The first thing that makes a business to be eligible for cash advance loans online is that it accepts credit card payments, fulfilling the vast majority of its business transaction by using Visa or Mastercard. That is not all. A business also has to be generating a significant amount of monthly revenue before it can be considered for an advance. For most merchant cash advance providers the minimum is usually around $5000 a month. As long as a business is generating this amount on a monthly basis, it can be eligible for an advance that is two to four times its monthly sales revenue. A business is also expected to have a minimum credit score of around 500 to be eligible for cash advance loans online even though much of the lending decision is not based on the volume of the credit score but the volume of credit card sales. Above all, a business seeking a merchant cash advance has to have a physical location; it also has to have been in operation for more than three months.
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Why are small Businesses Finding Merchant cash advance so attractive?
One of the main reasons why small businesses are finding cash advance loans online attractive is because it gives them the opportunity of borrowing cash without having to offer collateral or personal guarantees. A merchant cash advance is entirely unsecured because it is a sale and not a loan in the actual sense. Meanwhile, businesses that opt for a merchant cash advance have the advantage of not having to worry about having good credit scores as this has always been a significant reason why they do not access bank loans. If there is any one thing that has endeared small business owners to cash advance loans online, it is the fact that funds can be processed and obtained quickly in a matter of days as compared to typical bank scenarios where businesses would have to wait weeks or months to receive feedback on applications. Above all, a small company looking to merchant cash advance providers for funding have realized that is the most reliable way of getting cash because approval rates exceed 90 percent. All in all, cash advance loans online are fast becoming the number one choice for businesses in dire need of cash—and for a good reason.