Obtaining Unsecured Business Loans from Merchant Cash Advance Providers

unsecured business loans

Small businesses often require funding from external sources at several points in time to grow and expand. External funding could also be required to just keep the business afloat perhaps through purchasing of inventory, paying of workers, and purchasing of equipment. Whatever the reason might be small businesses, in particular, will always be in need of loans at one point or the other. But obtaining a loan is one thing that has proven to be so much difficult for small businesses especially those that do not have a strong credit history as well as those who do not have business assets that could serve as collateral—which is one of the of the core requirements for obtaining funding from traditional lending institutions such as commercial banks. Unsecured business loans such as those provided by merchant cash advance vendors are what small businesses that are unable to obtain loans from commercial banks as a result of the inability to provide collateral require. While it is very true that it is mostly businesses that have a hard time with the issue of collateral that tend to opt for unsecured business loans the situation at the moment is quite different. Because of other peculiarities of merchant cash advance, for instance, an increasing number of small business owners consider merchant cash advance providers before any other source of financing.

What it means for a merchant cash advance to be unsecured

The major reason merchant cash advance providers sprang forth providing loans without the requirement for collateral has a lot with the fact that inability to provide collateral has always been among the top reasons why small business are unable to access funding—that is, if it is not foremost reason. By providing unsecured business loans, merchant cash advance vendors have sought to tackle the problem of collateral. And this has made more and more small businesses gain access to funding. In practice, an unsecured loan obtained from merchant cash advance providers has other characteristics apart from the fact that collateral is not required. First, there is no obligation on the borrowing business to repay the loan in the first place. For one thing, lending institutions do not have access to business assets which can be seized when the business fails to pay. Besides, once the borrowing files for bankruptcy it is discharged from the contract and will not be held liable for paying the advance.

The main reason for this is that unsecured business loans obtained from merchant cash advance providers are structured as a sale of business receivables to the lender. This means that the lender does not lend to the business in the actual sense of the word; rather it purchases a percentage of the future credit sales of the business that is said to be borrowing. So if the business is unable to generate revenue as had been anticipated, the merchant cash advance provider suffers loss. This does not mean, however, that the business is at liberty to engage in acts that could undermine the take of the lender in the business; it cannot carry out activities that would seek to deprive the merchant provider of its due. Although unsecured business loans are not regulated by the government as are conventional bank loans, there are some industry conventions that major merchant cash advance providers seem to adhere to, and this requires them to deal honestly with clients.

How the merchant cash advance process works

As has been said earlier merchant cash advance is essentially a business-to-business transaction in which the borrowing business sells its future credit receivables to the merchant cash advance vendor. There are some things that involved in obtaining unsecured business loans from merchant vendors. The process of applying for a merchant cash advance is quite similar to that of securing conventional business loans. It begins with filling out a form that is provided by the merchant cash advance provider in question. With this form, the provider does a quick of evaluation of whether or not the business is qualified for an advance. Some of the factors that are considered include credit score (this should be at least 500), and operating history which should be at least six months. Once the provider is satisfied that the business has met these and other requirements for unsecured business loans the merchant cash advance agreement can then be assigned after the terms of the contract have been agreed to.

One of the things is the merchant advance agreement is the factor rate. This represents the fixed charge on the amount that has been borrowed. The factor rate is determined by considering the volume of credit sales of the business—the minimum is often placed at $5000 per month—as well as the amount that is involved.  The other factor that is integral to merchant cash advance is the withholding percentage. This is the portion of credit sales that is remitted to the merchant cash advance provider on a daily basis. Depending on the amount that is involved and the sales volume of the business, this could be somewhere between 15 and 25 percent. And is the case with unsecured business loans daily payments are continually made to the merchant vendor until payment has been completed.

Benefits of unsecured business loans

It is quite obvious from the discussion that merchant cash advance itself is a simple process through which small business can have ready access to funds without having to bother about such things as collateral. In addition to this, there is no requirement for personal guarantees of some sort, ensuring that the merchant bears no risk at all for the money it borrows. This is something that could hardly be imagined outside the walls of merchant cash advance. And although unsecured business loans are associated with higher costs, other benefits such as speed and high approval rates make unsecured loans such as merchant cash advance a top choice for businesses. Indeed, from what has been observed over the last couple of years, it might be that merchant cash advance will eventually replace banks as the number one source of funding for small businesses.

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