Knowing where to get a business loan that is right for a particular business is likely one of the top issues affecting businesses presently. When it comes to the issue of obtaining a business loan, the one size fits all approach is not often used. There is no one particular source of business funding that is suitable for every kind of business. To claim that such exists is to be far removed from the reality of the business world. The practical thing for a business to do is to evaluate different options and determine which is best for it.
Choosing between traditional lenders and non-traditional lenders
Broadly speaking any business that is deciding on where to get a business loan is going to have to choose between the traditional lenders and the no popular alternative lenders. This choice is of course not an easy one to make. For most businesses, this is a question of choosing between a certain and uncertain option; a cheap and a more expensive option; a slow and a fast option; and so and so forth. Because traditional lenders are not able to offer all that nontraditional lenders can offer, and vice versa, the choice becomes even more difficult. So it is important for a business to do a thoroughly weigh both potions before coming to conclusions.
Why alternative lenders might be chosen ahead of traditional lenders at any given time
A business that is earnestly seeking where to get a business loan that is right for it might inevitably be drawn to the alternative lending industry in general and merchant cash advance providers in particular. The reason for this is not often far-fetched. That alternative lenders have revolutionized the lending industry is something that can no longer be denied. While on the one hand they are viewed as threatening by traditional lending institutions, on the other hand, they are hailed by perceptive business owners.
The alternative lending industry has witnessed enormous growth, more than anyone could have anticipated. The reason for this growth is because of the introduction of collateral free lending, poor credit score lending, and almost instant lending. One cannot be working to assert that it is these three features of alternative lenders, particularly merchant cash advance providers that have made merchant lending companies where to get a business loan as far as small businesses are concerned.
Taking a closer look at merchant cash advance—what is it?
The first thing to know about a merchant cash advance is that it is simply a sales transaction. It involves the sale of a portion of the future receivables of a business. The sale is done at a discount to account for the depreciation of money over time. The purchase price that merchant cash advance provider pays for the future receivables is a lump sum of cash that is delivered to the business for its use as working capital. Merchant cash advance companies remain where to get a business loan for many businesses because the whole transaction is done very quickly, typically completed in a few days.
How does Merchant Cash advance work?
A merchant cash advance transaction begins when the merchant cash advance agreement is signed. The agreement contains all the terms of the contract and is somewhat similar to that of conventional bank loans. A business that is in need of where to get a business loan will typically approach a merchant cash advance provider and might have to fill out some forms online. With the information that is submitted, the merchant cash advance providers can quickly evaluate the suitability of the business for an advance. If they are satisfied, it is the usual practice for the company to send representatives to the business for other issues to be discussed.
The subject of the discussion is almost always on the factor rate, the holdback percentage as well as the retrieval method. A factor rate is a number usually between 1.2 and 1.5 with which the actual advance is scaled to arrive at the total payback amount. The holdback percentage is the amount of the daily credit card sales of the business that is channeled towards repaying the advance. Once the issues of factor rate and the holdback percentage have been settled, the next thing the business seeking where to get a business loan has to agree with merchant vendor is the retrieval method.
Batch splitting as the most common retrieval method
One of the most common means through which payments are made to the merchant cash advance providers is batch splitting. The business that adopts the method of batch splitting typically authorizes its credit card processor to forward the agreed percentage of the daily credit card sales to the merchant cash advance provider on a daily basis before forwarding the remainder to the business.
The reason that the business seeking where to get a business loan will often opt for batch splitting is it gives it greater control over the repayment process. Although other repayment methods such as automated clearing house transactions are also adopted in some cases even though it gives the business lesser control.
Requirements for being issued a merchant cash advance
Sometimes knowing where to get a business loan might not be the problem. The problem might be meeting up with the requirements for the loan. Although the requirements for a merchant cash advance are not as stringent as those of commercial banks, they still have to be met before a business can be granted a cash advance. The first requirement for receiving an advance is that a business must accept credit card payments.
The business must also generate minimum monthly revenue of about 5k dollars as this is what most merchant lenders require. Even though the emphasis is not placed on credit score by merchant vendors, a business is still required to have a minimum score of about 500. Finally, for a business to be eligible for an advance, it must have a physical location as online businesses are excluded from receiving a merchant cash advance.