In view of some crucial circumstances, many entrepreneurs simply cannot be approved for a bank loan. It may seem like they no longer have any chances to find enough necessary business funding.
If you too think this way, then you have never heard of alternative lending platforms. In fact, one of the good ways to handle your primary expenses is turning for a merchant cash advance.
Bonus: How to get your business funded in 2017.
What Is a Merchant Cash Advance Exactly?
Among the alternative lending ways of financing a merchant cash advance (MCA) tends to be a common phenomenon.
Although a merchant cash gives business owners a chance to regularly receive small amounts of cash through their bank accounts, it cannot be fully referred to being a loan. Such cash advances for business are mostly issued to people using credit cards to draw their money. Therefore, they are considered as an advance connected to the borrower’s future revenues or credit card sales.
How Are Merchant Cash Advances Different to Business Loans?
- The Concept and Benefits of Lending
When it comes to applying for a small business merchant cash advance loan, you understand initially that you must perfectly fit the lenders’ requirements in order to get approved. It’s just the matter, which kinds of demands are there to correspond to (owning assets for a collateral, good credit history).
Merchant cash advances in their turn do not require such procedures. For instance, if you apply to cash advance online through online lending companies, the process of receiving your funds is done within a few days.
- The Procedure of Payment
The business loan requires scheduled payments that divide the loan into several small pieces and in order to pay down this small amount, each time you have to go to the establishment and deposit it. Merchant cash loans the bank makes the payment deduction automatically without your interference.
Banks get very strict to the candidates for any type of business loan and if there are any discrepancies between the lender’s requirements and your criteria, you will most likely be denied.
Business cash advance services, on the other hand, are more loyal and do not require high credit ratings, nor do they demand a collateral. Everything is determined by your credit card sales and respectively, your capability to repay the advance.
- Terms of Payment
Traditional business loans usually set their own payment schedules that the borrower has to follow. The frequency of such payments is set individually, but normally for the customer’s convenience, they are made each week or month. With merchant cash loans, however, a payment is based on the agreed percentage or deduction rate of credit or debit card sales. It depends directly on your sales.
Business owners prefer taking merchant cash advance as a quick source of funding, which repayment terms vary from 4 to 18 months. Besides, a MCA user is required to pay a fixed percentage of his revenues each day.
- Cost of Merchant Cash Advance
Getting approved for merchant cash loans is easier and much faster than getting an approval for a bank business loan. Therefore, they tend to have higher interest rates (15% – 80% on an annual basis on the amount funded). The higher percentage – the shorter the length of the repayment is.
Who Can Apply For a Merchant Cash Advance?
If your business receives large credit card revenues, then you will get the most benefit out of such alternative lending platforms, as merchant cash advances. Moreover, if your request for traditional business loans is constantly denied, you can try this option as well.
Advantages of Using MCAs
Among the most substantial perks are a quite high chance of approval and fast application procedure. Merchant cash advances are easy to receive even for borrowers with poor credit scores.
Herewith, they have no specific weekly or monthly payments. Plus, you can use your cash however you like to since there are no limits regarding its usage.
Check our Q&A to know where you can get merchant cash advance.