The small business industry has been facing significant challenges in the last couple of years. It appears that is now more difficult for small businesses to thrive. Time and again it has been revealed that one out of every three small business start-ups in the country is expected to fail. This is something quite disturbing considering that small businesses are the mainstay of the American economy. The main problem of course for these failing small businesses has often been financing. Because of the relative difficulty of obtaining funding from traditional sources, a merchant cash loan might be just what a business needs at this point to stay afloat.
Does everyone think that a merchant loan is a good idea?
Before what looking at what merchant cash advance is and how much it can mean for the survival of a business, it is important to point out that not everyone thinks a merchant cash loan is worthwhile. The first objection that is often put forward against merchant cash funding has to do with its cost. Because merchant cash advances are relatively more expensive than loans from traditional sources, its benefits are far too often, ignored. Although merchant cash advance can be quite expensive, when one looks at its benefit, it is easy to see how it far outweighs the cost. Moreover, a merchant cash advance can many a time be the only option available to a business that is desperately seeking to survive.
The issue of the unscrupulous practices of some merchant cash advances lenders
Another objection to merchant funding is that it is a disguised form of a loan, only that it is more expensive. Those who make such assertions do so possibly out of ignorance. Otherwise it based on negative experience certain merchants have had, with a merchant cash loan. It is true that some merchant vendors structure their advances to mimic a loan in certain key respects. One way this is done is to insert clauses in the merchant cash advance agreement that makes the business, personally responsible for the repayment of the loan, a situation which ought not to be. The solution to this is, of course, looking out for credible merchant cash advance providers. As long as a business is dealing with a credible lender, the question of deception does not arise.
What then is a merchant cash advance?
The simplest way one can describe a merchant cash loan is that it is a commercial transaction involving two businesses. The business in need of funding offers the merchant cash advance provider a portion of its future credit card sales in exchange for an equal amount of cash. The sale is made at a discount to the merchant lender, a discount which is the source of profit for the merchant cash advance lender. Because it is a sale some of the basic elements of a loan are absent. There are no fixed terms; the advance is to be repaid at some time in the future which cannot be known for sure. There are also no interest charges but fixed payments. The repayment of the merchant cash loan is not made on a monthly basis but a daily basis. The merchant offers a fixed percentage of its daily sales automatically to the lender until the advance has been repaid in full.
How it benefits a business—collateral, and guarantees
It can be said that the major way in which merchant cash advance benefits small businesses is that it is a source of funding that does not call for collateral and personal guarantees. For the inability to provide collateral has been identified as one of the biggest reason for businesses being denied loans. One can only imagine what companies in need of funding to take advantage of a rare business opportunity has to go through if it cannot provide the required collateral or guarantee. A merchant cash loan, however, takes all that worry away and businesses can now obtain funding easily.
Speed and Ease
It is one thing for a business to be able to obtain funding it is another thing for the funds to be delivered just when the business needs. Imagine a business that is offered a special discount on inventories if it purchases within a short period. Such business cannot begin to approach commercial banks for assistance. For one thing, it will take some much documentation and difficulty before a commercial bank loan is processed. Even at that, it could take several weeks or months for a business to receive feedback on its application. This shows that traditional financing options are not ideal when it comes to emergency funding. In such circumstances, a merchant cash loan is likely the best option.
The issue of reliability
Closely related to the issue of time is that of reliability; that is, how likely it is that a given loan application to a lender is going to end up being accepted. In this regard one again merchant cash advance providers have demonstrated their superiority over traditional lenders. It has been estimated more than 60 percent of loan applications to commercial banks end up being rejected for either lack of collateral, poor credit score and some other reason. So any business seeking funding from traditional sources should almost always expect a rejection. The reliability of a merchant cash loan is in contrast quite impressive. It is known that more than 90 percent of loan applications to merchant lenders are accepted. This means that almost any business that is need of funding is favored with merchant loans.
The seeming ease with which a merchant cash loan can be obtained has a lot to do with the fact that merchant lenders do not pay much attention to some of the main things considered b traditional lenders such as credit score and the number of years business has been in operation. This has caused a stir in the small business lending industry. While others consider merchant cash loan to be disrupting the lending industry, small businesses that have benefited from merchant funding consider it to be a revolution. Regardless of what the skeptics might think merchant vendors have lived up to expectation, providing funding to small businesses when it matters most.