How Merchant Cash Advance Brokers Have Addressed Small Business Funding

merchant cash advance brokers

Alternative lending is something that has added on a good weight of popularity and acceptance across the last couple of years. While one might keep on speculating exactly why this has been the case, it is essential that we examine some of the few alternative lending sources for a business to decide which one might be best suited to its business.

Before examining some of these alternative sources, it has been emphasized that merchant cash advance which is provided by merchant cash advance brokers is the leading source of alternative lending. So when we are making a comparison of alternative lending sources, we are, in effect, comparing other sources to merchant cash advance. And this is precisely what we shall do.

The reason why merchant cash advance is considered as the leading source of alternative financing is that merchant cash advance providers have recorded immense success. The merchant cash advance industry itself accounts for more than half of the total lending to small businesses. While in one calendar year, the total lending impregnably burst above $4 billion, with merchant cash advance brokers bearing the weight for the provision of $3 billion of that humongous amount.

And, following the success of merchant lenders, commercial banks have had cause to review their lending policies, hoping that a little adjusting here and there would put them in a better position to compete with merchant cash advance providers. That said we shall briefly compare merchant cash advance with term loans and business line of credit.

Merchant Cash Advance versus Short Term Loans

A short-term loan is a funding option for a business that needs cash to solve immediate business problems. It is often repaid in less than two years. Term loans by their very nature require the business to pay interest on the amount that is borrowed. The interest that is charged on a term loan has much to do with the amount that is borrowed and the relative level of risk which the bank perceives in issuing out the fund.

A merchant cash advance, on the other hand, is a commercial transaction between merchant cash advance brokers and businesses where the business sells its future receivables in exchange for a lump sum of cash. Unlike as it is with term loans, interest is not charged on a merchant cash advance. However, merchant cash advance providers charge a fixed fee for the service that is being rendered.

The fixed fee usually comes in the form a special factoring. What this means is that when a business borrows a certain amount of money, the merchant cash advance brokers multiply this amount by a certain factor to arrive at the total amount which the business is to pay back.

This factor in most of the cases is often less than 1.5. The reason why the cash advance is factored is that of the need to account for the fact that the money which is being issued to the business would have appreciated to a much higher value at the future time when it is expected to be paid back. The factor rate is determined by the amount that is involved as well as the volume of monthly credit card sales of the business.

Merchant cash advance brokers take the maximum level of risk in issuing advances to small business that would almost certainly have been rejected by commercial banks. This risk is also considered when the factor rate is being decided. Unlike a term loan which requires a business to make monthly payments to the lending bank, merchant cash advance brokers as a matter of tradition insist on daily fees that are deducted from credit and debit card sales. The amount of the daily credit card sales that is remitted to the business is something that must have been agreed to in the merchant cash advance agreement.

This amount known as the withholding percentage is usually between 10 to 25 percent depending on the volume of credit sales and the amount that has been issued to the business. Provided that a business agrees to the terms of the agreement, merchant cash advance brokers usually do not hesitate in granting funds to a small business.

There are lots of reasons why business opt for merchant funding ahead of short-term loans. Some of the reasons include fast processing and delivery of funds, no collateral requirement, and the fact that a business with a poor credit score is also eligible for an advance.

Merchant Cash Advance versus Business Line of Credit

The significant difference between a business line of credit and a term loan is that a line of credit is not issued at once; rather the business is granted permission to borrow up to a certain limit. As long as this limit is not exceeded, the business can have instant access to cash. In spite of how good a business line of credit might sound, it does not measure the cash advances provided by merchant cash advance brokers.

For one thing, the amount that can be obtained through a business line of credit is insufficient. In most cases, the amount is usually less than 500k dollars; while that of merchant cash advance could be as high as 5 million dollars. Meanwhile, the initial phase of trying to secure a business line of credit can be quite tasking.

The chances of it being approved by the bank are also very slim since the business has to have a good relationship with the bank before the time of application coupled with the fact that it has to be considered creditworthy by the bank. Merchant cash advance brokers, in contrast, ensure that nearly all businesses that apply for a business loan get it by making the requirements less strangulating than those needed for a traditional business line of credit.

Dropping the curtains of this session, it can be easily seen that compared with a business line of credit and a short-term loan, merchant cash advance is the superior lending alternative. After all, it is not for nothing that merchant cash advance providers have grown so popular in the last couple of years. While one cannot be sure if merchant cash advance brokers will eventually impeach commercial banks to become the leading source of funding for small businesses, one can be confident that merchant cash advance itself has come to stay just like artificial intelligence has come to stay.


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