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Business Cash Advance – The New Loan For Small Business

November 18th, 2010 Leave a comment Go to comments

Businesses are frequently in need of a loan. It could be for purchase of equipment, working capital, buying inventory, renovations or perhaps an acquisition, a business will need funding to finance the project. Bank loans are helpful but difficult to secure. Small businesses especially have a hard time qualifying for bank loans because of the strict requirements and long timelines. The recession has also spun a credit crunch that has aggravated the situation further.

Some of the available small business loans are lines of credit, term loans, equipment leasing, secured or unsecured working capital loans, SBA loans, and franchise startup loans. All these loans need extensive documentation including review of credit history, income projections, collateral as security, an effective management and an impressive growth plan. In spite of doing all their homework, businesses may have to approach multiple financial institutions before they procure a loan since the approval rates are not very bright.

There is an alternate loan option that may be suitable for your business if you abhor the time and the documentation it requires to get a conventional loan or if you simply cannot wait around for several weeks to get it approved. It is called business cash advance or merchant cash advance (MCA). It is definitely a better alternative for small businesses with urgent financing needs. Many banks, private companies, and credit card processing companies offer such financing. The interest rate on an MCA is higher than a bank loan, but the difference has shrunk in the past few years. The documentation required is pretty minimal, and credit score? well, if it’s good, great. If not then it will not ruin your possibility of getting an advance though it may affect the amount of cash advance sanctioned. The approval cycle is short – anywhere from a few hours to only 3 days! And best is that the cash gets transferred into your business’s bank account in a few days to a week. That’s just what makes MCA so popular – funds are available when needed the most.

The one necessary requirement for the acceptance of an MCA application is a history of good credit card sales over the past few months (typically an average of $3000-$5000) and at least one year in business. The MCA or merchant capital provider buys a percentage of your future credit card sales receipts for the advanced amount. The repayment is handled at the credit card processor’s end without needing involvement of the business or the cash advance provider. This is good as the business owner does not have to keep track of payments or payment dates. Another great aspect of an MCA is that the monthly payment varies depending on monthly credit card receipts and is fixed as a percentage of the same. Cash advance recipient is relieved of the pressure of sending in a fixed monthly payment since it can fluctuate based on monthly sales.

Financial loan laws do not regulate merchant cash advance lending since it is not a loan but a purchase of future revenue. There is no limitation on the interest rate a cash advance provider can charge. It is advisable to work only with reputable providers to steer clear of rip offs. Review the contract with care to make sure that there are no hidden costs or confusing terms and conditions.

The merchant cash advance industry is slowly maturing and many bigger players are making attempts to regulate it to some degree. As a result, MCA is fast becoming a mainstream source of finance for businesses of all sizes.

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