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:
Merchant Cash Advance – what it means.
When is Merchant Cash Advance the best loan option for your business?
Pros and cons of Merchant Cash Advance loans.
Does your business qualify for a Merchant Cash Advance loan?
How does Merchant Cash Advance work?
How much does MCA cost?
Merchant Cash Advance providers – what to look for.
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:
cannot obtain a conventional business loan at a favorable rate and within the needed time frame
cannot obtain a bank loan as they cannot offer a collateral
want a flexible payback structure that allows renegotiation
need to take credit but do not want it reflected in their credit history
have a reasonably stable credit card sales volume over the last few months
expect to increase its credit card sales volume in the coming months
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:
Quick funding: The advance is transferred to your account in less than 3 days after approval.
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.
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.
No restrictions: You do not need collaterals nor do you have to pay any application fees, processing fees or the like.
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.
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.
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:
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.
Short term: Repayment terms are typically 6-8 months.
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.
Limited advance: The MCA is based on the credit card statements of recent months and may not suffice to cover your immediate finance needs.
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.
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:
is operational since a year or more
is processing credit cards for at least the last six months (from the time of applying)
is maintaining a minimum of $5000 (or a minimum set by that MCA provider) in credit card receipts
is not availing any other MCA
has reasonable operating costs
does not have any property liens
has not declared bankruptcy before
has one or more years left on a property lease (not mandated by all MCA providers)
can provide proof of sales and past financial information
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:
recent credit card statements (spanning 3-6 months) to assess the consistency of your revenue stream
financial statements
information on current leases, time left on lease, and debts
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.
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.
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.
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.
Business cash advance also referred to as merchant cash advance (MCA) is a rapidly growing industry, and for all the right reasons. Its rising popularity can be attributed to its unique business financing model, which makes it attractive to small and mid sized business merchants with a history of credit card sales. Fast, unsecured business loans give credit card processing merchants the freedom to finance their working capital, equipment, inventory or business expansion needs within 24-48 hours.
In Jan 2009, BusinessWeek reported that business cash advance companies have penetrated about 10% of the business loans market that is worth about $5 billion to $10 billion. This booming business financing market has caught the interest of both responsible and unscrupulous cash advance lenders. All are out to make a quick buck!
Major industry leaders teamed up to form the North American Merchant Advance Association (NAMAA) in 2008 to standardize business cash advance industry practices. Small business merchants are advised to follow these guidelines to verify the authenticity of of the cash advance lenders before signing up for business cash advance loans:
1. Dealing with the Business Cash Advance lender directly
Make sure you are dealing with the business cash advance lender directly before applying for the business cash advance loan. Many business cash advance companies use loan brokers to get in touch with small businesses. Ask for a copy of the contract to verify that you are dealing with the cash advance company directly and not a loan broker.
2. Verify the Reputation of the Business Cash Advance Loan Company
Merchants must assure themselves of the reliability of the business cash advance companies by checking their expertise and references. The cash advance company’s association with NAMAA is a positive sign. Find out how long the business cash advance company has been in business. Merchants will get maximum benefit from business cash advance companies that have experience in the same industry as the merchant, and have handled similar sized accounts, average monthly credit card sales volumes and cash advance amounts.
Asking for references is one of the best ways to substantiate a cash advance company’s reputation. Ask business partners and associates about their experience with business cash advance for small business and the approval process.
3. Scrutinize the Business Cash Advance contract diligently
The devil is in the details. Read and understand the fine print in the contract. Business cash advance is not a credit, and business cash advance companies do not come under the same mantle as banks and other lending organizations. Laws such as the Fair Debt Collection Practices Act will not help or protect the merchant if the business cash advance company tries any unsavory tactics. Make sure there are no loopholes in the contract that gives the business cash advance company the right to seize property or overcharge. The contract is the only document that can protect you legally.
4. Verify that the Business Cash Advance Company has Sizeable Number of Staff
Business cash advance companies and merchants should communicate frequently to have a good business relationship. Professional business cash advance companies keep the merchant informed through the application approval process and repayment phase. A business cash advance company will have a good communication system if it has sufficient company representatives maning the phone calls.
Reputable business cash advance companies vastly outnumber the unscrupulous ones. The small percentage of unscrupulous business cash advance companies can still tarnish the image of the business cash advances industry. NAMAA hopes to shakeout unscrupulous MCA players by forcing them out of business. This can happen if merchants are aware of the ‘best practices’ of the Business Cash Advance industry.
Business cash advances ensure small business merchants have quick access to unsecured business loans while they have the assurance of payments from their credit card sales volumes. Merchants and the Business Cash Advance companies can have a long and fruitful financial association if the merchants follow the guidelines laid down by the Merchant Cash Advance industry.
With the titans of the business world struggling to raise cash, it’s no wonder the wells are running dry for small businesses. Fortunately, small businesses have options to traditional bank loans–and they don’t include begging Congress to bailout main street.
Here’s a look at five ways your business can build cash flows in today’s tight credit market.
Cash is King
The secret to small business success? Cash, cash, cash. Effective cash flow management has trumped location as the number one determinant of a healthy business. Maintaining a positive cash flow is the key to making the most of your fortunes in the marketplace and growing your business.
The following strategies will help you raise capital in any economy:
Banking on a Loan Alternative
Private bank loans, the traditional source of ready cash, are less accessible and a worse deal than ever before. The credit crunch has left lenders low on funds and more risk-averse than in the past. A Federal Reserve survey of senior loan officers found that seventy-five percent of banks have tightened their lending standards for small business loans. As a result, approval rates are low, the turnaround time for loans is long, and interest rates are less favorable than before. Fortunately, small businesses can take advantage of alternative sources of business funding.
1. Federal Small Business Administration (SBA) Loans. President Barack Obama’s Small Business Rescue Plan promises to create affordable loans for small businesses. The federal Small Business Administration’s Disaster Loan Program would provide low-interest, long-term loans administered directly through the federal government. With interest rates capped at four percent and repayment terms extending up to thirty years, the SBA offers terms struggling small businesses can live with.What’s more, lending standards for SBA loans are more generous than private bank loans, making capital infusions a reality for more small businesses.
2.Business Cash Advance. Another tactic for raising capital for working capital or business expansion is to forgo the credit market altogether and leverage future profit instead. Business Cash Advance also referred to as Merchant Cash Advance offer businesses a “cash flow” based on their average monthly credit card sales volume. Available throughcredit card processing companies and third-party providers, buiness cash advances provide immediate access to operating funds between $2,500 and $300,000. In exchange, the merchant agrees to remit a portion of future credit card receivables to the business cash advance companies. The credit card processing companies handle the transaction, automatically deducting a fixed percentage of each month’s credit card revenue. Revenue-based “repayment” allows businesses to manage their cash flows, paying more in flush times and less when resources are tight.
3. Private Equity Investors. If your small business shows promise, you may be able to ride out a tough market by attracting the interest–and cash–of private equity investors. Friends and family,angel investors, and venture capital offer a time-honored solution to cash-flow problems. But first, you’ll have to present your case to best effect. An online presence can help potential investors appreciate the value of your business. Consult professional Website Design companies to produce a site that showcases your sound business plan, past wins, and anticipated success.
Positive Cash Flows through Sound Financial Management
Besides raising cash, business owners can build cash flows by managing finances effectively. Options include:
4. Managing Accounts Payable and Receivable. Generally speaking, a well-managed business collects receivables as quickly as possible and defers payment as long as is feasible. The economic crisis is making sound cash flow management more difficult for small businesses, which are facing delayed payments from cash-strapped customers. To preempt this problem, pursue accounts receivable immediately. Business consultant Casey Gollan recommends following the 7/60 rule: “Ideally, have your money come in within seven days and pay your bills around sixty days.” This strategy offers you the most advantageous cash flow position. Point of Sale (POS) systems can be a valuable resource in keeping tabs on accounts payable and receivable. Today’s POS systems offer account tracking features that help your business
a. Generate invoices
b. Track outstanding bills
c. Stay on top of installment purchases
d. Send collection and reminder notifications to overdue accounts
Other tactics for accelerating payments include offering discounts for early payment and allowing customers an easily-accessible Web interface for managing their account. Ecommerce solutions facilitate collections through Electronic Funds Transfer (EFT,) online credit card processing, account status tracking, and other accounts payable (AP) services.
5. Lease, Don’t Buy. Equipment leasing can free up valuable resources by distributing the cost of expensive investments over time.By leasing equipment, computers, cars, or tools you need, you can grow your business without impacting cash reserves or tying up credit lines. Office Equipment leasing allows businesses to focus cash flows and credit resources on daily operations and other immediate expenses.
As cash flows diminish, small businesses need busness funding to sustain their existence. Innovaive business funding options and sound cash flow management are the keys to maintaining liquidity in tough economic times. Resources for building your business’ cash flows still exist. Take advantage of these five cash flow positive strategies to shore up your financial position in today’s market.
The 2008 credit crisis underscored just how important timely access to capital can be for small business merchant to keep the lights on. Merchant cash advance (MCA) represents an important resource in maintaining a business’ cash flows. Merchant Cash Advances offer small business working capital on the strength of their future credit card receipts. The lcash advances essentially enable merchants to take their business to the next level, leveraging their present success in order to finance future growth.
Anatomy of a Merchant Cash Advance
Merchant cash advances help streamline the small business loan process, eliminating much of the hassle associated with conventional smal business loan applications. Commercial loans typically involve a longer application cycle, higher approval standards, and smaller sums than MCAs. Merchant cash advances, by contrast, offer quick infusion of businss funding.
Application Process. Some providers boast a 24-hour turnaround of applications, and make funds available within seven business days. Many offer online applications. Unlike many conventional loans, Merchant Cash Advance applications do not involve upfront costs such as processing or closing fees.
Funding Amounts. Funds range from $2,500 to $500,000, depending on the cash advance lender, the applicant’s business history and its average monthly credit card sales volume.
Eligibility. Merchant Cash Advance lenders assess applicants on two simple criteria - average monthly credit card sales volume and years in business. A typical benchmark for approval is $5000 in monthly credit card sales volume and at least 1 year in business.
Repayment. The hallmark of merchant cash advances is the hassle-free repayment method. The merchant cash advance companies automatically deduct a percentage of credit card sales receipts. Since the repayment amount is based on monthly credit card sales, it varies based on the small business’ performance. The more successful the business, the higher the payment; when business is tight, the payment amount drops.
Advantages of Merchant Cash Advance
Merchant cash advance companies are able to streamline merchant funding because they are not technically loans. Though the effect is the same–a store or restaurant receives cash infusion –the terms are different. A Merchant Cash Advance company essentially purchases a share of future credit card receivables. The status of this exchange as a purchase rather than a small business loan offers several important advantages:
No collateral is required. Cash Advance for small business is not linked to an applicant’s personal credit. Also, as with unsecured business loans, they do not require collateral.
Hassle-free application. The business cash advance application process does not require the auditing typical of conventional loans for business, so tax returns and asset documentation are not required.
Flexible merchant funding. Small Business Cash Advances come with no stipulations about how the funds should be applied.
A business cash advance offers a flexible alternative to conventional loans for business. By purchasing receivables rather than loaning businesses cash outright, merchant cash advance companies simplify the process. Merchants enjoy a simple application process with fast turnaround. Within a week, applicants have access to the business funding they need. Better yet, repayment is hassle-free. By collecting a percentage of the credit card receivables, merchant cash advance companies position themselves as true partners in their client’s success.
Inflation and a bad economy are leaving small and mid-sized businesses with lesser money to cushion themselves against unforeseen eventualities. New equipment, supplies and repairs can take on scary proportions when you’re business is already stinting to meet every day cash flow needs. Cash advance businesses step forward as entities who loan money on interest to small business for their specific needs. The small business cash advance is available within 72 hours and can be used by the small business to deal with any type of need with no questions asked.
There is no dearth of cash advance businesses, but you should compare a few business cash advance companies to get the best deal. A search on the internet will flood you with offers. Here are a few pointers on what a cash advance business should offer:
No credit checks
A good number of the people who apply for cash advance loans don’t have good credit histories. Look for cash advance businesses that do not conduct credit checks. The downside to the cash advance arrangement is a high interest rate but since the merchant 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 cash advance businesses who can lend at least $10,000 conveniently. The amount you can borrow is directly proprtional to your average monthly credit card processing for the last 6 to 12 months. To be eligible for a businss cash advance you need to be in business for atleast 1 year and $5,000+ in average monthly credit card sales.
Minimum paperwork
When you need cash immediately, getting embroiled in lengthy paperwork is the last straw. Look for cash advance businesses who need minimal paperwork. Proof of your duration in business and the average credit card sales volume for the last 12 months should suffice as guarantees of your capability to repay the cash advance. Your small business needs 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 company, your business need must be urgent. The cash advance business should approve your advance quickly and transfer the money to your bank account within 72 hours. Time is crucial in these transactions as you cannot afford to wait for more than a day to remedy whatever situation you’re facing.
Revenu Based Payments
A small business owner agrees to remit a percentage of the credit card sales receipts to the business cash advance company by signing a contract. The credit card processing company executes on the contract agreement by deducting the percentage from every future credit card transaction and sending it the business cash advance merchants bank account automatically. This ensures that the business cash advance company receives timely payments, while the small business owner is free of tracking payment due dates, signing monthly checks and other paperwork.
Cash advance loans are a reliable support in times of dire need. However, you should avoid depending on them too often as the interest rates can be quite high for a term as low as one year. Cash Advance for small business can also include an initial fee apart from the interest. References are especially important in this business as you don’t want to be stuck with a cash advance business who is hardheaded or a cheat.
Small businesses are always on the lookout for capital funding. They have to take risks to grow, and taking risks requires capital. Cash Advance for small business is fast gaining popularity as a means for small and mid-sized businesses to get business loans without pledging any collateral or securities.
Before taking a business cash advance, small business owners and merchants must understand how business cash advance works. The small business owner should research the market for the current business cash advance rates and approach only the best business cash advance companies to avoid a bad deal.
other loan options are not available for you financing needs
the small business does not have a good credit score
the company has been in business for atleast 1 yearand has $5,000 in monthly credit card sales
Traditional small business loan options do not fit the bill
Small business owners can get a home equity loan if they have a house to use as collateral. The interest is low, but the risk is high. The home equity loan will be used to fund the business. If the business fails and the loan cannot be paid off, the business owner may lose the house. Some small merchants rely on credit cards for cash flow, but again, this type of funding is limited and at a much higher interest rate. In addition, there is the risk of being penalized for late payments or non-payments.
The best business cash advance companies are not creditors but are true business partners sharing in the risk and reward. They receive a percantage of the merchant’s credit card sales at a discount in exchange for the merchant advance. The percentage varies based on the merchants monthly credit card processing. The small business merchant does not have to worry about installments and due dates.
Good credit score is not a criteria for cash advance approval
Risk is a necessary element in business. Unlike big businesses, small businesses do not have the cushion to survive risks without affecting their credit score. Credit score is a major criteria for banks to approve business loans. This works against small businesses that are running perfectly now, but may have had bad credit 4-5 years back.
Business Cash Advance companies do not look at history. The focus is on the current sales revenues of the business. Though Business cash advance lenders also verify the credit score, it is notas important as the average monthly credit card sales volume.
Average Monthly Credit Card Sales is very important
Business Cash Advance companies verify the average monthly credit card amount processed by the business in the previous year, before approving the merchant advance. The amount of the business cash advance depends on the volume of credit card sales. The business cash advance company specifies the total amount advanced and the percentage of credit card sales it will receive, in the contract with the small business owner. Once the contract is signed, the credit card processing companies takes care of the payments to the business cash advance lenders.
Business owners should understand the eligibilty requirements for business cash advance and the merchant loans. A business that does not have atleast $5,000 in monthly credit card sales and has been in business less than 1 year should not consider business cash advance as a financing option.
Banks are going through hard times with loan defaults and cash deficits. Traditional business loans have become very difficult to come by and small businesses need to look elsewhere for funding. Business cash advance is an excellent option for small business owners looking for quick and unsecured business loans.
The current economic crisis has seen a new funding source emerge to bail out small businesses – Its called Business Cash Advance.
Commercial bank loans, and in particular small business loans, have been one of the casualties of the financial meltdown. This has resulted in small business owners and merchants requiring an excellent credit rating to qualify for traditional small business loans in this current economic environment. And If you do qualify, you risk losing your homes and personal property if used as collateral for such loans.
But, cash flow is the lifeblood of every small business. It is used to for necessary working capital – to pay employees, suppliers, stock up on inventory and invest in business expansion. And Cash advance businesses have stepped up to bail out small businesses on main street. Their process of extending small business cash advance does not depend on your credit score. A good credit score is definitely a plus, but not the most important factor to getting a business cash advance. If you have been in business for more than 1 year and have atleast $5000 USD in monthly credit card sales, your small business is an ideal candidate for a business cash advance.
There are many advantages to taking a business cash advance:
1. Simple and Easy Application process
Business Cash Advance Companies need only two details from the small business — monthly credit card sales and the length of time in business. This is unlike banks where two year tax returns, financial statements and business plans need to be furnished to be considered for a small business loan. Most cash advance businesses expect at least $5000 in monthly credit card sales and a minimum of 1 year in business for you to qualify for a business cash advance.
Repayment of the cash advance is also simple. The credit card processing companies that handle the credit card processing for small business deduct the mutually agreed percentage amount of all future credit card sales and deposit this amount in the bank account of the business cash advance company until the loan has been fully paid back.
2. Quick disbursements
The cash advance business can easily verify the credit card sales and credit score as the information is available online. There is no other paperwork required for business cash advance approval. The approval goes through quickly and the business cash advance is disbursed to the small business within 2 weeks or less. The small business can use the funds for immediate working capital needs such as paying off creditors, sale promotions or investing in business opportunities such as expansion, e-commerce website etc.
3. No collateral is required
Small business owners are often in danger of losing collateral if they are unable to pay back a traditional small business loan. As business cash advance companies do not need a collateral against the loan, small business owners can do away with that worry. Moreover, the relation between the cash advance businesses and the small business is that of a buyer and a seller, not a creditor and a debtor. The cash advance business has purchased a percentage of the credit card sales on a discount in exchange for the small business cash advance. The credit report of the small business will not be impacted by this transaction.
4. High approval rate
Business Cash Advance companies place their trust on the small business’ capability to keep performing rather than its credit history. Most small businesses that have more than 1 year of business history will qualify for a business cash advance. The amount of the cash advance depends upon the average monthly credit card sales revenue of the business in the previous year.
5. Performance based re-payments
The best part of a business cash advance is that it is paid off in amounts that are proportional to the credit card sales receipts of the small business. If the small business has good sales month, the cash advance business get paid more. If the business has a slow month, so does the business cash advance company. This arrangement frees the small business from the pressure of sufficient monthly sales to pay off fixed installments. The business cash advance companies share the highs and lows of the small business.
Low interest loans are ideal for business plans with a long term horizon. However, if the small business needs funds immediately, business cash advance is the best option as it is approved and disbursed in less than 2 weeks. It has been the only bail out available for main street small businesses to survive this great recession.
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