The situation in the lending industry is such that business owners have so skeptical about seeking out loans and other forms of financial assistance. It has been reported that some 16 percent of small business owners that were in need of funding did not bother contacting lending institutions simply because of the fear of being rejected. The reason for this is traceable, in most cases, to some basic factors. First, banks have made the requirements for issuing loans much more stringent and if not for no credit check loans offered by merchant cash advance providers for instance business funding would have been virtually out of the reach of small businesses. Suffice it to say that the emergence of alternative lenders and particularly merchant cash advance providers have helped to fill in the gap created by traditional lenders. Though all alternative lenders claim to be the perfect replacement to commercial bank loans, it is merchant cash advance that shall be our focus as it is the most popular and perhaps effective source of no credit check loans. The reason merchant cash is sometimes called a no credit check loan is due to the fact one of its main characteristics is that it is not issued based on the credit history of the business which is what the credit score shows. The decision as to whether or not a particular company is to be granted a merchant cash advance is, as we shall see, dependent on a host of other factors.
Understanding what merchant cash advance is and how it works
Even though merchant cash advance is commonly thought of as a loan because it is quite similar to one in the sense that it still involves the whole process of a business receiving funds from an external source, there are several reasons why it is not a loan from the technical perspective. No credit check loans do not have fixed terms like conventional bank loans, and the merchant is not obligated to repay the loan. Although personal guarantees are not provided in merchant cash advance transactions, there have been cases where merchant lenders tried to extract some form of personal guarantees from the merchants in the hope that if the business for whatever reason goes bankrupt and cannot repay the advance, they might be able to hold them personally responsible for repaying the loan. However, when situations like this went to court, the courts were quick to affirm that no credit check loans by their very nature cannot be secured and typically ruled in favor of the merchants.
These kinds of judgments are to be expected since a merchant cash advance is a mere commercial transaction which in this case involves two businesses. In this transaction, a business agrees to offer the merchant lender a percentage of its future daily receivables in exchange for cash. It means that lender becomes entitled to a percentage of its credit card sales. In practice, a fixed percentage of daily credit card sales are remitted to the merchant lenders offering no credit check loans. This daily remittance is typically made for as long as it takes to repay the advance. And just like every other lending source the amount the business repays is higher than that which was borrowed and in the case of no credit check loans, the total payback amount is often between 20 to 50 percent higher than the advance. This factor of 20 to 50 percent is known as the factor rate and appears in mca agreements as 1.2 and 1.5 respectively.
The amount of daily payments is, on the other hand, determined by the holdback percentage which often between 15 and 25 percent. A holdback percentage of 25 percent simply means that each day 25 percent of the amount realized from credit card sales will be automatically remitted to the merchant cash advance provider until the debt has been repaid. The obvious implication of using a holdback percentage instead of a fixed amount is that the business can pay according to how well it is faring. For instance, if the business has a good season and sales are high, it pays more and quickly offsets the advance; if the reverse happens to be the case then the business pays less, and its cash flow is not significantly impacted. Having said lets us take a look at some of the benefits of opting for no credit check loans ahead of other options.
Why are Small Businesses Finding No credit Check Loans Very Attractive?
The fact that the merchant cash advance industry has experienced so much growth in the last two decades shows it has been well received by small business owners around the country. And it is so because merchant cash advance providers are meeting some of the needs of small businesses that were left unmet by traditional lending sources. For example, no credit check loans are given without regard to the credit score of the business, a fact that which has made it sometimes called bad credit loans. Although this means that small businesses with poor credit scores not sufficient to be considered for bank loans could have access to funding, it does not mean that just about any score will do since the minimum score expected is often around 500. This is much smaller than that of commercial banks which is usually 650 or more. Another major reason why small businesses seem to prefer merchant cash advance is because they are not required to provide collateral of any sort before being issued with no credit check loans. This further means that the business borrows without bearing the risk of losing assets if it is unable to pay back. Of course, businesses are also excited by the idea of waiting just a few hours or days before receiving funding as compared to having wait weeks or months for bank loans especially when the need is urgent. Above all, businesses seem to be enchanted by the level of certainty associated with no credit check loans, since a high approval rate more than 90 percent means that a business can be sure of getting its loan request approved.