Sometimes businesses are unable to raise the capital required for growth and expansion from within. At such times it becomes necessary for a business to look to other sources of support. For several years it has been the norm for businesses to look to commercial banks for funding. But with the recent decline in bank lending to small businesses, there has been a need for other options to be explored.
Part of the reason for the decline in bank funding is increased government oversight on the banking industry which has resulted in stricter requirements for obtaining loans. The question then is whether opting for a business advance in the face of such a difficult situation is a reasonable thing for a small business to do.
How the merchant cash advance industry is built firmly on advanced technology
It can be rightly said that without the impact of global technology, particularly that of the internet, it would be very hard for one to imagine the kind of services being rendered by merchant cash advance providers. Merchant vendors are a group of lenders who have taken advantage of the immense [power of the internet and software evolution to create solutions to the lingering problem of small business funding. A business advance has no doubt been made possible by the introduction of electronic payment systems which the whole industry relies on.
The introduction of electronic payment systems and powerful programming tools
Without electronic payments systems, who can imagine what it would be like for a lender to try and keep track with the amount of revenue different borrowing businesses make on a daily basis to deduct a particular amount. Also, the merchant cash advance industry leans heavily on the advancements made in the field of programming that has enabled data to be analyzed very quickly. Many a time a business advance can be obtained online in a matter of hours simply by entering the required information into the website of the merchant vendor.
Powerful algorithms are used to determine the creditworthiness of the business instead of the conventional approach that is far too often laborious and prone to human error. Anyhow one chooses to examine the whole issue of the emergence of merchant cash advance; it is quite clear that it stems from the desire of a group of lenders to make up for the lapses in the traditional lending sector by utilizing existing technology to provide a business advance to several businesses.
Taking a Closer Look at the Merchant Cash Advance Industry
What alternative lenders in general and merchant cash advance providers, in particular, are interested in is providing funding to small businesses that might otherwise have no access to business funding from traditional sources. To make this possible in the case of a business advance from merchant vendors, there was a need to somehow eliminate some of the major obstacles that stood in the way of merchants when seeking loans from commercial banks and the likes. The issue of collateral had to be eliminated, and same happened to that of credit score. It is no longer secret that businesses in need of funding do not have to provide collateral or have good credit scores when dealing with merchant vendors.
How merchant cash advance lenders are primarily concerned with the issue of speed
It can be said that one of the primary reasons for opting for a business advance is the fact that it can be obtained very quickly. This must have been one of the major things that the first merchant cash advance providers had in mind when trying to solve some of the problems in the traditional financing sector.
The idea of providing funds as quickly as possible to businesses using powerful technologies is one that has resonated with the needs of small businesses. As has been said earlier modern technology has made both process of issuing loans and the process of paying back a business advance as fast as possible. Let us take a look at how the repayment process has been affected by technology.
How the process of paying back a merchant cash advance looks like
There are several options when it comes to paying back a merchant cash advance. All of the methods are however automatic and involve a fixed percentage of the revenue of a business being sent to the merchant cash advance lender on a daily basis. The most common method of paying back a business advance is batch splitting.
In batch splitting the business authorizes its processor to transfer the agreed portion of the daily credit sale to the merchant lender and after that forward the remainder to the account of the business. The process is even easier when the processor is the lender as is sometimes the case. So in a merchant cash advance, the issue of monthly payments which could be missed is eliminated.
Is obtaining funding from merchant vendors a reasonable thing for small businesses to do?
There is no gainsaying the fact that there are certain situations in which the only practical thing for a business to do is to seek a business advance. When a business is hard pressed for funds, and it does not even meet the requirements for a conventional loan, then the only viable option is for it to turn to merchant cash advance lenders. In spite of the relatively higher cost of merchant cash advance, once a business is certain that injecting the advance in the business will yield the desired results, then there is no reason to hesitate.
That is not to say that a business advance is only useful under emergency situations. Indeed, a business could opt for an advance to avoid some unpleasant aspects of other lending options. Not every business is willing to stake its assets for a loan. Nor is every business willing to go through the rigor of a commercial bank loan. Businesses that realize how important reliability and speed is, often find it rewarding to obtain an advance.