There is virtually no aspect of modern life that has not been impacted by technology. It is the same in business as it was in the communication sector. One aspect of the business which has been transformed by technology is that of lending. Today, non-traditional lenders such as merchant cash advance providers offering merchant advance loans are gaining grounds in the field of small business lending. Merchant cash advance providers and a host of other alternative lenders utilize potent technologies in processing loan applications.
In what ways has technology impacted the lending industry?
The immediate impact of adopting powerful technologies has been in the area of processing time. Because the whole underwriting process has been made digital, it is not unusual for loans to be evaluated within a few days and in some cases—hours. Merchant advance loans, therefore, have become one of the top choices of small business who are in dire need of business funding. Of course, the entire process of application has been made stress free so that small business owners opting for a cash advance do not have to go through the rigorous process of documentation involved in commercial bank loans.
How is merchant cash advance structured?
Because of the use of technology most small businesses now fulfill the vast majority of their business transactions using credit card payments. This is precisely where merchant cash advance gains relevance. For, it is the use of automatic payment systems, which has made merchant advance loans possible. Merchant loan is in reality commercial transactions in which a business sells its future credit card sales to a merchant lender to obtain financing.
Because the business makes use of credit card payments, it is possible for merchant cash advance providers to keep track of how much the business generates in revenue. In most case when the processor of the business is not facilitating daily remittance of the greed portion to the lender, the processor itself is the lender. Indeed, most businesses would prefer to have their credit card processors provide them with merchant advance loans.
How is a merchant loan different from a commercial bank loan?
One of the significant features of a merchant cash advance is that it does not attract interest payments. Instead, a special form of factoring is used. So the merchant is made to pay a fixed fee which could be from 20 percent to around 50 percent of the loan amount. One other significant difference is that as far as merchant advance loans do not have fixed terms. This means that the time it takes for the loan to be repaid depends on how much revenue the business generates.
The reason for this is that most merchant cash advance transactions require a fixed percentage of the daily sales of the merchant to be committed to paying back the advance. Because of this, the merchant pays more when the sales are high and lesser when the sales are low. This further means that with merchant cash advance there is less strain on the cash flow of a business.
The merchant cash advance industry is also unregulated. There have however been calls for the government to regulate the industry as a result of the unscrupulous practices of certain merchant cash advance vendors. Because the industry is unregulated, merchant advance loans transactions are not governed by the same laws as commercial bank loans. However, laws that apply to regular business to business transactions, such as the uniform commercial code and the fair credit reporting act still govern merchant cash advance transactions.
Who is Qualified for a merchant cash advance?
In spite of the fact the requirements for a merchant cash advance is less stringent than those of bank loans, it is still not all businesses that will have access to merchant funding. The first requirement for a business to be eligible for a business to be eligible for a merchant cash advance is that it must accept credit card payments. These days, however, businesses that accept ACH can now be issued with merchant loans. For businesses in this category, the sale is not made against future credit sales; instead it is made against the total receipts of the business.
Furthermore, for a business to obtain merchant advance loans, a business has to have a credit score of at least 500. Even though this is usually required, the decision of whether or not a business is to be issued with funding is not based on its credit score. Merchant lenders make this decision based on the volume of sales the business generates. In fact, some lenders only allow a business to borrow up 250 percent of its monthly revenue. For most lenders, monthly income of $5000 is sufficient.
Some Benefits of Merchant Cash Advance
It has been observed that most businesses that turn to merchant advance loans are those that have been rejected severally by traditional lenders. This does not mean, however, that some businesses do no go first to merchant lenders. Indeed, that is sometimes the case for businesses who consider the time it will take to obtain the funding to be a priority. Others, however, opt for merchant cash advance because there is no requirement for collateral and personal guarantees. The idea of not having to lose one`s assets if one defaults are surely attractive.
Of course, the high rate of approval of merchant advance loans is one other thing that stands merchant advance lenders apart from the crowd. With merchant cash advance businesses can be certain that each loan application is almost certainly going to be approved judging by the typical 95 percent approval rate. One proof that merchant cash advance lenders have lived up their promise is that rapid growth the merchant cash industry has experienced. Another, of course, is that the vast majority of merchants who have used merchant advance loans in the past are always ready to do so anytime the need arises.