Can a Merchant Cash Advance Serve as Corporate Financing?
Businesses usually require corporate financing in order to get out of sticky situations related to a financial deficit. There are different kinds of loans that cover this sort of working capital need including basic loans which consist of commercial loans, long-term loans, and acquisition loans. There are other more complex financing options that you may consider too. These include working capital advances, equipment financing, and cash advances. Of course, banks are always an option to go to, and one can consider this option. However, we all know the standard troubles of getting a bank loan. A bank takes several weeks and in some cases months to process basic corporate financing. They go through heavy paperwork, large security deposits, and a long-term digging into your audit, credit and finance history before even giving you an answer of acceptance or rejection of your loan application.
In this article, we are going to go through various options of funding that can be used as corporate financing that may be faster and more feasible than a standard bank loan. These kinds of loans should be taken into consideration Since there are always organizations who are looking for fast cash in order to fund some urgent capital requirement.
Basic Loans comprise of funding on the basis of debt. This arrangement is set up within a business by their finance providing institution. Once the arrangement and agreement are made the loan is provided to provide for large capital and operational expenditure that is difficult for a growing business to meet on their own. These loans are usually provided for a short period of time and they are backed by a security deposit which may be in the form of a property, jewelry or belonging. This collateral required may not be as big as what a bank requires, but this is how secured loans work, providing a guarantee to the lender that the business borrowing these loans will pay their dues back. These loans may have a flexible rate of interest that may be equal or a little higher than standard bank rates. Apart from these basic requirements, the borrower will also have to pay the lender for the maintenance of their collateral till they are under their custody.
For an established business this may be an incredible option to acquire corporate financing however, an established business may find the regulations, high upfront costs and other collateral related hurdles, a little too much to be able to meet in order to acquire their loans. In fact, these established businesses tend to require corporate financing more than pre-established businesses. Since smaller businesses are the ones who do not have equity and access to debt forums within the market or even their own money to be able to fund the business through rolling, they are in higher need of such forums. However, due to the strict guidelines of the lending mechanism, these companies are left to rely on themselves, instead of getting an opportunity with these financial institutions.
Compared to these debt-based loans, are long-term loans that may act as corporate financing and can be acquired from a bank or another financial institution. These loans are based on a specific amount limit and have a clearly charted out repayment schedule. The term of repayment may vary from somewhere between one to ten years and for businesses most likely will have to pay it back in installments divided into each month over that period of time at a fixed amount. For businesses, this is an ideal scenario to be able to acquire fixed long-term assets which may include, property, vehicles or equipment and machinery that may be required for production. What most businesses tend to ignore about these loans are that the rate of interests will always be fluctuating within this form of funding.
Yet again this may not affect established businesses as much, however, for smaller and thriving business owners this may prove to be a challenge to return to even if they manage to acquire corporate financing through this form of funding. Not only the idea that it is highly unlikely that young corporations would be eligible for this loan due to all the reasons mentioned earlier but the fact that establishing businesses may not have the same sort of sales every month, making it difficult for them to keep the lease payout consistent for the entire time-period. The extra cash they just used to pay-back the loan they had borrowed could have been used on some other form of resource which would have probably brought in enough to pay-back a double amount in the coming months.
Young businesses for that matter turn around to look at unsecured loans as a form of corporate financing mechanism. This form of loan system works on the close study of a young business’s credit history since establishment rather than the collateral. If a decent credit is maintained the lender issues a loan which is then paid back on fixed amounts on a regularly set timeline until the loan is paid back in full. The difference between a secured loan and an unsecured loan is that if a secured loan is not paid back the collateral might be either confiscated or sold out to pay the borrowed cash back to the lender. While on an unsecured loan, the credit amounts may be sealed and send over to the lender to balance their debt. In any case, you are bound to pay back in a fixed time or you are facing circumstances.
Another option to get hold of corporate financing is an acquisition loan which aids a business owner to acquire a specifically required asset for a specific function of the business. If the application is accepted and to the lender does not seem like a tricky investment, the loan will be granted. These loans are specifically used when working capital is required for a needed asset required for a business function to operate properly however the company does not have enough liquid cash to be able to fund it. For any company big or small this form of corporate financing will be more feasible than others and may constitute to better terms that may be in favor of the company. Considering that even the particular asset that is being acquired does have a tangible value and can be used as a form not only to generate revenue from but also be depreciated over a number years to file tax returns that add-on to the company’s income. In fact assets at the end of their lifespan can be sold out for scrap to be able to generate some liquid capital which can all be used to pay for the loan borrowed to acquire this particular asset. This loan may be sanctioned on basis of a specific requirement giving the company only a limited time actually to be able to spend this amount. These funds are fixed and cannot be added to until completely paid back.
The hurdle businesses have to face with this sort of corporate financing mechanism is that they have to meet specific criteria before they are sanctioned this loan. Again for well-established businesses, this is not a difficult task, however for established businesses this may yet again become a challenge. Since established businesses are not only growing businesses but also businesses that are learning, they may realize some innovative idea with their acquired asset, however, they may neither be able to dispose of their asset nor be able to use it since they are committed to repaying their loans. In the event that the loan is overdue in the time-frame provided for its return, chances are that the lending company may just confiscate the asset unless the loan is paid back.
Merchant Cash Advance
With the advancement of the lending market, more complex financing options have been created, and at the surprise of most people, these options are actually very interesting because they allow business owners to have their way. These advances provide an opportunity for established businesses to have access to short-term working capital as a means to cover their financial gap. These capital advances have a huge variety within them and include self-liquidating capital advance, asset-conversion, cash flow advance, working capital advance, non-notification capital advance, bridge advance and merchant cash advances to provide the company with corporate financing. The main aim of all these options is the same, and that is to allow establishing companies to have access to the required working capital for their business development and revenue generation.
One of the best ways to provide establishing business owners with corporate financing is the Merchant Cash Advance. It works in a slightly different way than most other forms of loans. Persistent on being known as cash advances instead of a loan, these financial schemes tend to allow growing businesses to have access to short-term working capital for multiple different resource requirements at the same time. These advances have a faster pace of application. In fact, agencies working with this form of financial aid may be regarded as the fastest financing institutions. The application process may take from five minutes to thirty minutes while the acceptance may be informed to the applicant within a few hours to a few days at maximum. Within two days of accepting the cash advance, is deposited into the business’s bank account. The payback is flexible and works on the basis of a percentage of the company’s future sales. This includes both the actual amount and interest. The amounts are not fixed and hence the percentage set is deducted on a daily basis from the credit card sales transaction of the company. This way the company is paying back the amount on a daily basis and yet does not have to worry about big chunks going missing. Since the money is only deducted on basis of the percentage off the sale within a day, the amount returned by the company each day may vary to pay back the corporate financing borrowed.
One such mechanism is the Merchant Cash Advance. It is perhaps an ideal for young and established businesses to acquire a corporate financing to enable them with a working capital fund to run their daily operations. The Merchant Cash Advance works in a similar mechanism to the other forms of cash advances, with one major difference. The Merchant Cash Advance states their return based on factoring. Due to this, a company can easily predict from the very beginning of taking the advance, what amount will they be paying back to the lender. This way a company can plan their percentage of return on a daily basis and yet have a flexible time of paying back without having to worry about collateral that is kept as a security deposit and time frames in which the payment is returned in full.
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