If you have a small business that is unable to get approved for a coventional small business loan or don’t want to deal with the hassles of a long business funding approval process, lots of paperwork, secure collateral and fixed monthly payments, many merchants including small business owners are turning to merchant cash advance loans as a means of raising capital for their business. A merchant cash advance loan works by paying merchants a cash advance for a percentage of future sales. The cash advance is then paid back over time in the form of a small, fixed percentage of the business’ credit card transactions so the repay is more flexible and based on cash flow. Merchant cash advance helps business owners get the cash they need for equipment, services, inventory, settling past debts and just about anything they need to grow their business and here is a list of the top 10 merchant cash advance companies:

1. Benchmark Capital Funding
2. Accelerated Business Capital
3. Merchant Rewards Network
4. Paramount Merchant Funding
5. North American Bancard
6. Business Cash Advance
7. First Working Capital Group
8. Advance Me
9. Sure Payment Solutions
10. Next Level Funding

Don’t agree with this list? Recommend a Merchant Cash Advance vendor that you believe should be ranked higher or log into Tradeseam Business Network and recommended your preferred vendors that are best in the business.

Are you in need of a business loan? Are you one of the 25 million small business owners affected by the recent recession? Has the recent recession caused your credit score to dip? Did you know that with the collapse of the banking sector even perfect credit scores are not enough to procure a traditional small business loan? Are you concerned that with the fall of real estate prices and the consequent removal of home equity loans, you will be unable to acquire a loan for your small business? If yes, then merchant cash advance can serve as your business’ lifeline in economically recessive times.

Importance of Small Businesses

U.S. National Small Business Association estimates over 25 million small businesses existing in the economy. These businesses make up half the private sector and are responsible for nearly 70 percent of job creation. Government agencies had set aside billions of dollars for lending to small business owners but the recent recession has devastated the commercial lending industry. Available bank loans are low, approval rates even lower. This is where merchant cash advance financing assumes importance. It provides funding in an environment of uncertainty and economic downturn. It will give your business the resources it needs to face these hard times.

If your business is in critical need of funding, your credit score is unsuitable for procuring a bank loan or your business model does not allow for incorporation of monthly repayment schedules as in case of restaurants, then merchant cash advance is ideal for you.

Understanding the Benefits of Merchant Cash Advance

In addition to availability of business cash advance financing, it offers you a number of other advantages in the turbulent economic times. First, with high approval rate and quick turnaround, you don’t have to wait for weeks and months to repay any pending bills and employee payments. Second, merchant cash advance companies align your repayment amount with your business revenues and do not make any unreasonable repayment demands that you cannot meet. Third, merchant cash advance does not put your assets and personal credit at stake. Since it treated as a purchase and not a loan, it has no effect on your future funding in case you are unable to make timely repayments during harsh economic period. Traditional smal business loans with default risk and consequent deprival from future funding cannot offer you these benefits.

Changing Financial Times

Merchant loans represents the next step in the world of commercial financing. While economic recession caused the bank lending sector to fall, it was unable to negatively impact merchant cash advance financing. On the contrary, the industry grew and thrived in the recent hard times, establishing that merchant cash advance has the ability to be your business partner in good and bad times. With better regulations, removal of black hat elements and falling rates of interest, merchant cash advance is well on its way to becoming the primary financing source for small businesses. It provides a unique combination of speed and flexibility that respects the power of the business entrepreneur and rewards good performance.

When you need loans for your business, there are more than just banks you can turn to. Merchant cash advance (MCA) or business cash advance is the easiest and quickest means for immediate business financing needs. Though a relatively new financing source, Merchant Cash Advance is popular with small and mid-sized companies as it is an unsecured business loan with no collateral and can be secured with less than perfect credit scores.

Business Cash Advance loans is now offered by small and large finance organizations, banks and private companies. As the industry is still largely unregulated, unsavory players can try to get the better of you; fleecing you of your hard earned money. In this article, we try to explain the ins and outs of merchant cash advance, its positives and negatives, and tips on selecting reputed Merchant Cash Advance companies. The topics discussed include:

1. Merchant Cash Advance – what it means.
2. When is Merchant Cash Advance the best loan option for your business?
3. Pros and cons of Merchant Cash Advance loans.
4. Does your business qualify for a Merchant Cash Advance loan?
5. How does Merchant Cash Advance work?
6. How much does MCA cost?
7. Merchant Cash Advance providers – what to look for.
8. Alternative business loan options

Merchant Cash Advance – what it means

Merchant Cash Advance is the perfect short-term source of finance when business funds are needed quickly. Traditional business loans have a very long approval cycle, loads of paperwork, painstaking credit and background checks, and collaterals – delays you can ill afford when business is not at its best. What’s more, you may still not get approved for the loan. MCA providers, on the other hand, have a high approval rate. They do some basic checks and validations, and advance you the cash in minimal time.

Small Business Cash Advance is not really a loan, but like it. You are selling your future credit card receipts for a lump sum of money paid in advance. The amount of the advance is based on your average monthly credit card sales. You get the money within 7-10 days after an approval cycle of a few hours or 1-2 days. No collaterals. No stress of fixed installments. Minimal paperwork and flexibility.

However, MCA does not come cheaply. The providers are taking a big risk in paying you a large advance which is why they charge high rates – 20%-45% on an average and up to 80% for high risk businesses. In spite of this drawback, MCA is a popular option as it allows businesses to maintain minimum cash flow in good and bad sales days. Moreover, MCA does not impact credit reports as it is recorded as an expense.

When is MCA the best loan option for your business?

MCA is not suitable for every business and certainly not for long-term financing. Businesses should evaluate their payback potential as they risk overextending themselves if the MCA is not paid off quickly. Typical instances where an MCA is useful are:

1. immediate business opportunities
2. purchase of inventory
3. paying off a debt
4. expanding operations
5. launching a new store
6. renovation
7. marketing ventures

A Business Cash Advance Loan is most useful for businesses that:

1. cannot obtain a conventional business loan at a favorable rate and within the needed time frame
2. cannot obtain a bank loan as they cannot offer a collateral
3. want a flexible payback structure that allows renegotiation
4. need to take credit but do not want it reflected in their credit history
5. have a reasonably stable credit card sales volume over the last few months
6. expect to increase its credit card sales volume in the coming months
7. will be able to repay the loan without finding it too burdensome (repayment amount increases with credit card sales volume)

Though MCA is a viable loan option for all businesses, it is particularly popular with retail and restaurant businesses that take at least two years to stabilize. This factor makes it tough for them to get approved for bank loans. Seasonal businesses such as pool cleaning services, landscaping firms, and summer camp facilities use MCA to stock up on inventory so they’re ready for customers and peak sales.

Pros and cons of Merchant Cash Advance loans

Though MCA provides a timely reprieve to businesses, it has its pros and cons. On the upside, MCA offers the following advantages:

1. Quick funding: The advance is transferred to your account in less than 3 days after approval.
2. No pressure: As the repayments are percentages of daily credit card sales, the amount fluctuates with sales volume. There is no pressure of fixed installments and timelines.
3. High approval rate: MCA providers look at credit histories but are not stringent about it. They invest in the business’ future rather than penalizing it for past failures.
4. No restrictions: You do not need collaterals nor do you have to pay any application fees, processing fees or the like.
5. No impact on credit rating: MCA is not a loan and it does not show up in your credit history, even if you are unable to repay it.
6. Potential tax benefit: MCA is written off as a purchase or expense, saving you dollars in tax. Your accountant can advise you on this benefit.
7. Minimal risk: MCA is unsecured. If your business fails and you are unable to repay the complete advance, the provider cannot claim your property.

On the downside, MCA has the following restrictions:

1. High rates: As MCA is unsecured, providers compensate for the risk with high rates and short terms. Being a largely unregulated industry, there is no restriction on how high the rates can go.
2. Short term: Repayment terms are typically 6-8 months.
3. Not for all businesses: MCA providers check the longevity of a business and the average credit card sales volume. Home-based businesses and start-up companies may not get approved for MCA. Also, the total credit card receipts per month should be at least $3,000 or some fixed minimum.
4. Limited advance: The MCA is based on the credit card statements of recent months and may not suffice to cover your immediate finance needs.
5. Importance of consistent performance: MCA providers may send your account to a collection agency if they observe a fall in sales over a period or any other aberration.
6. May need you to change your merchant account service: MCA providers need to have access to your merchant account to collect the repayments. If your existing credit card processor does not allow this, you need to switch to another service. You may also be penalized by the merchant account service you curtail.

Does your business qualify for an Merchant Cash Advance loan?

MCA providers have simple guidelines to qualify businesses for the advance.  Though the exact prerequisites vary across providers, a business will usually get approved if it:

1. is operational since a year or more
2. is processing credit cards for at least the last six months (from the time of applying)
3. is maintaining a minimum of $5000 (or a minimum set by that MCA provider) in credit card receipts
4. is not availing any other MCA
5. has reasonable operating costs
6. does not have any property liens
7. has not declared bankruptcy before
8. has one or more years left on a property lease (not mandated by all MCA providers)
9. can provide proof of sales and past financial information
10. can outline a plan for using the advance (not mandated by all providers)

The better you can convince the MCA provider of the success of your plans, the higher are your chances of approval. Though an unblemished credit history is not necessary to qualify you for Merchant loans, it can certainly get you better rates and a larger advance.

How does Merchant Cash Advance work?

Here’s a step-by-step rundown on how MCA works.

1. Contacting an MCA provider

A business owner fills out an online application form on an MCA provider’s website or calls them on the phone. The provider asks some basic questions about your business, why you need the advance and how soon.

2. Review of financial documents

The MCA provider will ask you for:

1. recent credit card statements (spanning 3-6 months) to assess the consistency of your revenue stream
2. financial statements
3. information on current leases, time left on lease, and debts
4. assurance that you have no other MCA transactions

You will fill an application form that permits the MCA provider to pull out your credit report (if required) and check it for bankruptcies, debts, liens or court judgments.

3. Approval

After the preliminaries are verified, the MCA provider will approve your business for a cash advance amount. Approval takes a few hours or 1-2 days at the most.

4. Calculation of cash advance and factor rate

Based on the assessment of your financial situation, the MCA provider will calculate a safe retrieval package. This is the maximum amount the provider can deduct from your daily credit card revenue without compromising your business stability. The provider will fix an advance amount, a factor rate (percentage to be collected as the provider’s fee for the advance) and a daily retrieval rate (percentage to be collected from your daily credit card revenue).

5. Signing the contract

Once both sides agree to the rates, terms, and conditions, a contract is drawn out. The contract clearly outlines the advance amount, factor rate, retrieval percentage, repayment schedule, and the provider’s rights in case you are unable to pay back the advance. Once you sign the dotted line, your advance will be transferred into your account in a week or 10 days.

6. Paying back the business cash advance loan

The MCA provider will arrange for an automated clearinghouse or credit card processor to hold back a percentage of the daily credit card receipts. Typically, providers test small batches for a few days before transferring the advance into your account. This goes on till the complete advance, with the provider’s fee, is paid off.

How much does Merchant Cash Advance cost?

MCA providers charge a hefty sum for the risk involved in advancing funds to businesses. The rates can be as high as 30%, going up to 60% for riskier businesses. The amount you need to pay back is determined by the advance amount, provider’s fee (factor rate) and the daily retrieval rate.

1. Advance amount: is determined by the provider on the basis of your financial stability, time in business, current sales volume, credit history, and similar factors. It can be 80%-125% of your average monthly revenue.
2. Factor rate: is the percentage of the advance you need to pay the provider as fee. On an average, this is 20%-45% of the advanced amount but can go up if your business is a risky investment.
3. Daily retrieval rate: is the percentage of your daily credit card processing that will go to the MCA provider. This rate ranges from 15% to 25% based on how quickly you want to repay the advance. Providers will calculate the safe retrieval package to ensure you maintain enough cash flow to sustain daily operations.

It works better for your business if you repay the Merchant Cash Advance loan in 6onths or so. However, the repayment timelines are not rigid and can be renegotiated. If your business does very well, the provider can increase the daily retrieval rate so that the advance is paid off sooner. Similarly, if the business is going through a slow patch, the provider may relax the daily rate, leaving you more funds for daily operations.

Merchant Cash Advance providers – what to look for

Merchant Advance is an attractive prospect for businesses. Big and small organizations are jumping into the fray to get a piece of the pie. MCA is now offered by banks, small independent organizations, private players, leasing companies, and financial organizations as package deals.

The most important quality in an MCA provider should be its genuine interest in supporting your business. It should take the time to understand your cash flow needs, work with you to fix a comfortable rate that leaves you enough funds to grow your business while paying back the advance. Here are some tips on selecting a good MCA provider:

Experience in the industry

Look for a reputed MCA provider that has worked with many businesses and helped them through financial hardships. Experienced MCA providers work with your business, looking for solutions that are mutually beneficial. Verify the MCA provider’s background, experience in your industry, and the clientele.

Transparent communication

The MCA provider should be able to answer all your questions on the application and repayment process knowledgeably. If they estimate that the retrieval percentage will be too high for the advance you want, they should communicate it to you immediately rather than charging exorbitant rates that cripple your business. A straightforward approach is critical in this relationship.

Comprehensive information

Working with an MCA provider may involve some changes at your end. You may need to switch your merchant account service and make business changes to work with lesser cash flow. The MCA provider should apprise you of these possibilities and convince you of the long-term benefits of these temporary adjustments.

Accessible customer service

You will need to contact the MCA provider frequently during the application and repayment process. Customer service should be reliable and accessible whenever you need assistance. If there is a slump in business or things are going well, you would want your provider to rework the existing solution for mutual profit.

Familiarity with your business history

Your bank or credit card processor may also offer MCA. You may get better rates from them as they are familiar with your business history and aware of its credibility.

Market survey

Survey the market for the current MCA rates. However, getting the best rate is not the deciding factor in selecting an MCA provider. Your focus should be on quality and the provider’s perception of your business potential. Quality providers will offer reasonable rates that allow you to manage daily operations creditably.

Things reputed providers do not do

Reputed MCA providers do not charge application and processing fees. They do not ask you to switch all your merchant account services to them. They are ready to wait for your decision and don’t try to rush you with limited time offers.

The contract

Ethical MCA providers will ensure contracts state the exact rates and terms discussed during negotiations. If there are any discrepancies or additional fees, discuss them with your provider. Study the contract carefully. Understand your obligations and the services that will be rendered by the provider.

Alternative funding options

Merchant Cash Advance Loans may not be the best choice for every business loan situation. Here are some alternative funding options you can use:

Factoring service

A factoring service buys a percentage of your accounts receivables at a discounted price. A lump sum (typically 60%-90% of the billed amount) is paid to you upfront. Though a quick financing option, you should consider its effect on your customer relationships. When you sell your outstanding bills, the financing service takes over the task of collecting them. Some customers, especially longstanding ones, may not be comfortable dealing with a third party agency. This may hurt your business prospects with them. Businesses that have many late paying customers usually find factoring services economical.

Factoring service providers charge a factoring fee to collect on a purchased invoice. This fee is low for creditworthy accounts. Assume you have an outstanding bill of $1000. The factoring service purchases it at 70% with a factoring fee of 15%. It pays you lump sum of $700. Once the provider collects the payment from the customer, she pays you the difference less the factoring fee. That is, she keeps 15% of $300 and pays you $255.

As factoring services only buy specific customer accounts or invoices, you still control a part of your receivables.

Loans for business offered by banks

If your financing need is not urgent, consider a traditional business loan. It involves detailed documentation, credit and background checks, stringent conditions, collaterals, and a long approval cycle. But the rates are low and payment options flexible. Bank loans are more comfortable for long-term financing.

Equipment leasing

If you want finance to procure new equipment, many vendors offer equipment lease. You can pay for the equipment in installments instead of a lump sum.

Avoid advance against credit card limits

Businesses that take a credit card advance against the credit limit of their business or personal credit cards pat high rates and also risk hurting their credit score.

Did you know merchant advances are not business lines of credit ? You don’t need to pledge your house or car as collateral to get it. Your business cash advance application has a fast turnaround time and is evaluated with minimal financial documents and intrusive questioning. You don’t need a perfect credit score to obtain merchant loans. Moreover, there is no need for any personal guarantee. Merchant cash advance is ideal for business models like restaurants and retail stores that cannot incorporate monthly payment schedules.

Did you know that a merchant cash advance is similar to a business loan in some regards? Read on to find out the similarities between the two options, to assess the best funding option for your business.

Interplay Between Credit Card Sales and Credit Scores

Although customarily merchant cash advance companies consider only your credit card sales to assess your eligibility for merchant cash advance, your credit score can also play a major role in the approval and sanction process, like it does in your conventional loan approval process. Many merchant cash advance companies such as benchmark capital funding, shavit funding, paramount merchant funding evaluate your credit scores before approving your merchant cash advance loan.

Credit scores play an important role in three aspects of merchant loans. First, a good credit score increases the likelihood of approval of merchant cash advance financing. Although the same is not a prerequisite, considering the risk-taking nature of many business-owners, a high credit score can give your merchant cash advance application a significant edge. Second, your credit score often plays a major role in deciding your merchant cash advance amount. The better your credit score, the higher will be amount of funds you receive from your merchant cash advance company. Third, non-payment of business cash advance loans cause a huge dent in credit score which affects your future financial interests. Thus, maintaining a good credit score is in your best interest.  

Short-Term or Long-Term Repayment

Lenders risk their funds each time they offer you a business cash advance loan. The risk increases with the tenure of the cash advance loan. The higher the risk, the greater will be the cost you incur. Like a traditional bank loan or small business loan, small business cash advances will cost you more for a longer term loan vs. a short term loan.

Although traditional small business loans charge you interest payments on top of the loan amount, merchant cash advance providers need repayments in the form of fees. Fee amounts charged are similar to the interest charges on conventional loans.

When you decide to opt for merchant cash advance financing for your business, make sure to assess both credit card sales percentage per month and the total amount you will need to repay. Pay back the funds sooner to pay less.

Two-Way Approval

Merchant cash advance industry is still a new industry seeking to improve regulatory mechanisms to ensure all the skeptical practices and players are weeded out of the system. Unlike in case of conventional bank loans, you are not the only one seeking business funding approval with merchant cash advance but the merchant cash advance providers are trying to get your business, this power can get you better loan rates, terms and service.

Inflation and a bad economy are leaving people with lesser money to cushion themselves against unforeseen eventualities. Urgent medical care, immediate household and car repairs can take on scary proportions when you’re already stinting to meet every day expenses. Business Cash Advance Companies step forward to loan money to merchants for short term needs. The unsecured cash advance is available within days and can be used by the merchant for working capital, emergency cash flow, stock pile or business expansion.

There is no dearth of merchant loans, but you should take care to avoid rip-offs. A search on the internet will flood you with offers. Here are a few pointers on what a merchant cash advance lender should offer:

No credit checks

A good number of the people who apply for merchant loans don’t have good credit histories. Look for merchant cash advance lenders that do not conduct credit checks. The downside to the cash advance arrangement is a high interest rate but since the advance is loaned for a short period, it does not appear too taxing. The high interest rate is the lender’s cushion against bad debts.

High advance amounts

If you are unable to meet your financial need without help, you’re obviously short by more than a few hundred dollars. Look for merchant cash advance lenders who can lend at least $1000 conveniently. The amount you borrow should be small enough for you to pay back quickly or the interest will become an additional burden.

Minimal paperwork required

When you need cash immediately, getting embroiled in lengthy paperwork is the last straw. Look for merchant loans that require minimal paperwork. Proof of business for more than 1 year and the last  6 months credit card statements that show you have average monthly credit card sales volume of atleast $5,000 should suffice as guarantees of your capability to repay the merchant loan. You need help quickly, and extensive documentation can bog you down.

Quick transfer of cash

If you are ready to borrow cash at the high interest levied by business cash advance loans, your need must be urgent. The lender should approve your advance quickly and transfer the money to your account within hours. Time is crucial in these transactions as you cannot afford to wait for more than a few days to remedy whatever situation you’re facing.

Flexible payback options

The merchant cash advance lender should be able to accommodate your payback schedule. If you request an extension of the payback term, the lender should be flexible enough to accept the change. Similarly, the lender should not cause problems if you can pay off the advance sooner than the scheduled date.

Business Cash Advance is a reliable source for cash in times of business need. However, you should avoid depending on them too often as the interest rates can be quite high (14%-30%) for a term as low as six months. Lenders can also charge an initial fee apart from the interest. Prefer a cash advance lender you have heard about through small business owners or other merchants over an unknown one. References are especially important in this business as you don’t want to be stuck with a lender who is difficult to deal with when it comes to merchant loan payments.