Small business lenders have as their primary concern the provision of funds to small businesses. When taking a look at the entire merchant cash advance lending industry, one might conclude that small businesses have so many options, so much so that the issue of funding should not be a problem. Just the opposite of that is true. In fact, small businesses have not had it more difficult than they currently have it. The main issue at stake is not where to obtain funding per-se; instead, it is determining which of the several available sources of funding offers the highest benefits to merchants for its cost.
There are those who would contend that traditional financing from sources such as commercial banks offers the best benefit regarding cost. But for other reasons which we shall consider, small businesses are drifting towards alternative financing in general and towards merchant cash advance in particular. While there are different categories of small business lenders in the alternative lending industry which has been growing tremendously in the last couple of years, merchant cash advance have stood out as the torchbearers for the industry. It is because of difficulty businesses could sometimes face in deciding which one of the alternative lending sources is best that a brief analysis of some of the most common sources of alternative financing is examined.
Venture capital—what is it?
Sometimes, when a business finds that obtaining financing from traditional sources such as commercial banks is proving increasingly difficult, it can decide to turn to a venture capitalist. Venture capital has its benefits, but then it has several negatives that make it not that great after all. Venture capital refers to business funding that is obtained from a venture capitalist. Venture capitalists are in most cases private small business lenders who look for small and medium-sized businesses with huge profit as a potential business to invest in.
What are some of the basic problems of venture capital?
The central feature of venture capital is that is offered to businesses that are driven by technology, preferably those that are founded on some novel idea. The obvious implication of this is that unlike merchant cash advance the venture capital is out of the reach of the so-called ordinary businesses that are behind the economic competitiveness of the United States
Also, obtaining a venture capital causes a business to lose some of its autonomy. This is because the venture capitalists who are averse to incurring losses can form part of the management of the company. Venture capitalists, although they can inject huge funds into a business that shows great promise, are not the idea small business lenders because of a wide range of small businesses that cannot benefit from them.
The invoice factoring firm—what is it?
There is no doubt that a business can sometimes be in need of external funding as a result of having a significant portion of its working capital tied down in the hands of debtors. In a situation like this, instead of a business having to turn to conventional alternative small business lenders, it could choose to sell off its unpaid invoices in exchange for cash. That is exactly what invoice factoring means.
The invoice factoring firm is the one that purchases debts; after the purchase, the responsibility for collecting the debts is transferred to the invoice factoring firm. Factoring firms pay around 80 percent of the value of the debt. Older debts cost less, and debts that are unlikely to be retrieved cost even less. Although invoice factoring are good small business lenders, they have significant limitations.
What is the main problem with invoice factoring?
The main problem with invoice factoring is that not every business in need of funding has some debts to sell. This, once again, unlike merchant cash advance that is available to almost any business that meets certain minor requirements, excludes a good number of businesses. Meanwhile, even if the business has some debts that can be sold, it still does not make factoring companies good small business lenders. The reason, of course, is that a business can need more than it has in debts. Factoring firms cannot handle such kind of demand and even offers less (80 or so percent) of what the business has in debts.
Merchant cash advance—what is it?
Merchant cash advance companies are just like invoice factoring firms. The major difference is that instead of buying the unpaid debts of a business they buy the future receivables of the business at a discount. Merchant cash advance vendors have come to be regarded as the best alternative small business lenders because of the unique advantages they have above others like a venture capitalist and factoring firms. Let us consider some of those.
Areas in which merchant cash advance is a better option than invoice factoring and venture capital
First things first: merchant cash advance lenders do not take part in the running of businesses nor do merchant cash advance lenders become co-owners of business as result of providing funding. Merchant cash advance providers are also seen as the best small business lenders because their services are open to a wide range of small businesses are not unduly restrictive like those of factoring firms and venture capitalist.
Furthermore, with merchant lenders, a business is likely to obtain the exact it needs, provided the amount does not exceed four times of its monthly revenue. This is a major advantage of merchant cash advance over invoice factoring. In addition to all of these, merchant funding is certainly the fastest of all three common sources of alternative financing.
Merchant loans, above all, are quite easy to obtain. Insofar as a business accepts credit card payments and fulfills the vast majority of its face to face transactions using credit cards, it can be easily issued with an advance. Merchant cash advance providers remain the best small business lenders as far as the alternative lending industry is concerned because of the ease with which funding can be obtained, and also because of the approval rate that is over 90 percent.