There is no question that the credit market is tight. Most banks are not lending money and many second tier lenders are extremely cautious about who they lend to. If you have bad credit, no credit, and/or no collateral, it can be even more difficult to get money.
For entrepreneurs and business owners this is especially tough. They need money to either get a business off the ground or to keep things running. One choice for business owners who cannot qualify for a traditional loan is to get a business or merchant cash advance. There are benefits and negative sides to using a merchant cash advance. When you weigh the pros and cons and assess your business needs you can decide if getting a merchant cash advance is an option for you.
Advances will cost much more in interest over time than a traditional loan. However, if you have bad credit, no credit, and no collateral, then you are probably already aware that your other financial options will have a higher interest rate. While the equivalent interest rate of a business cash advance will be quite a bit higher than other financial options, there are certain perks that come along with taking this option.
What Is A Merchant Cash Advance?
A business cash advance is when a company receives a lump sum of money and repays the lender by providing a set percentage of money from each of their future sales. For example, a lender can give a company a cash advance of $40,000. Then the company would pay the lender back by giving them 10 percent of the money they receive from any debit or credit card sale that they make after that point. The percentage varies depending on the lender and the business and most business cash advances are for sums under $150,000.
Requires Merchant Bank Account
You must have a merchant bank account to proceed with a financial advance. Only companies that accept debit and credit card payments from their customers can qualify. This is because you will be paying the lender back through debit and credit card orders–from which they get a certain percent of the sale.
Little Paperwork & Quick Qualification
Getting a business cash advance is much easier than applying for a loan. There is little paperwork involved and typically you will know within 48 hours if you qualified. The majority of businesses qualify and credit and/or lack of collateral is not heavily weighed upon when the company decides whether or not to lend to a business.
Not Tied To Strict Fixed Payment Schedule
For many business owners who cannot qualify for a traditional loan, advances are a good alternative because they offer flexible payments and do not require due dates. The payments are not fixed since they are a percentage of each sale. Business owners also enjoy that since there are not due dates they do not have to worry when sales are slow.
Phoenix small business investing experts suggest talking to a financial adviser before deciding to proceed if you cannot qualify for a business loan from a bank or other regulated financial institution. There are a number of options for business owners in this situation. Arizona business financing officials point out that getting a business cash advance is just one of your options and that a financial adviser can help you figure out the best financial plan for your company.