That is true for startups as well as established business that would need additional capital for several reasons, such as:
- Opening a new location or expanding your business at your existing location;
- Buying new machinery or simply replacing outdated equipment;
- Hiring as well as training new staff;
- Increase cash flow.
How do businesses go about getting working capital?
Dealing with working capital and loans is not an easy matter. There are several financial products out there with very different characteristics and it does require a certain level of knowledge to know which your business qualifies for. To make the situation more difficult each of those products (line of credits, equipment financing, invoice financing, SBA loans, term loans, etc.) has very different interest rates and repayment terms, making a very crucial decision what product to go for. So how do businesses normally approach loans?
Most of them as first choice to consider approach their bank or other financial lending institution. The interested rate that banks apply is relatively low and the repayment terms normally stretched in a reasonable amount of time. But banks have low business loans approval rates and plenty of documentation is normally required, making the process very lengthy.
When a bank declines a business loan or when businesses need funds in a very short time, alternative lenders come as a great help, offering Merchant Cash Advance as an alternative to obtain a loan. What makes this sort of funding exclusive this financial product does not require collateral or good credit, and with it funds are credited in a matter of few days. Even if you have been turned down by a bank you still have a good chance to qualify for a merchant cash advance.
Need to be said, however, that merchant cash advance is not cheap particularly if compared to other financial products on the market such as SBA or Bank Loans. Interest rate can be as high as 30%, with a repayment term as short as 3 months. That is due to its nature of high risk loan: this is indeed an unsecured revenue-based financial product, mean to say that there are no collaterals for guarantee it, and the full repayment is centered only on the success of the business.
Who Can Qualify For A Merchant Loan?
Most businesses qualify for a Merchant loan, even though eligibility criteria changes from lender to lender. For instance Best Offer Capital an MCA provider located in California, and one of the biggest lender in US, requires
- To own a business for at least six months;
- Accept payments through MasterCard and Visa;
- To have at least $10.000 monthly sales.
There is no minimum credit score in Merchant Cash Advance, but a credit score about 550 would definitely help in getting approved and most of the time in getting a better offer. Indeed if your credit score is below 550 you might want to go through the credit repair process before applying for MCA or any kind of business loan.
How Does Merchant Cash Advance Work?
The process is very simple;
- They buy a portion of your future-unprocessed credit card sales at a much discounted rate
- They set up your credit card processor to automatically deduct a small fraction out of your every day credit sales
- You continue doing your business as usual whereas your cash advance is automatically being repaid in about 6 to 9 months time.
