Instant Cash Advance and Small Business Funding
It is quite common for a business to seek some form of external assistance at some point. This may be when the company is trying to purchase pieces of new equipment when it is looking to expand its operations, or even when it needs to buy inventory. No doubt, businesses are not always able to provide funds required for some of the activities mentioned above from within the company. The practice of looking to external sources such as commercial banks and other traditional financing sources are therefore justified. But, in recent times focus has gradually shifted from conventional lending sources to alternative sources of finance such as merchant cash advance companies which provide an instant cash advance. The reason for this shift has much to do with the recent decline in bank lending to the small business sector. Since the end of the recent economic upheaval, banks have remained skeptical of lending to small businesses, considering doing so to be too risky.
Ironically, however, banks have increased their lending to big firms. While there has been an over 60 percent reduction in lending to small businesses, lending to the big firms has risen by about 7 percent. Merchant cash advance providers with their instant cash advance service realized the need for small businesses to have ready access to business funding and that is why they are in operation. For one thing, small businesses make up more than 90 percent of all of the companies in the United States. Also, it is they which are responsible for the employment of more than 50 percent of Americans. Merchant cash advance providers understand all of this that is why they have made small business funding through cash advance their priority. There are, of course, lots of alternative lenders out there and choosing the best alternative lending option is one of the most significant problems business are currently facing. Even when it comes to merchant cash advance providers, individual providers have different offerings. We shall later take a look at some of the things a business has to look out for in a merchant cash advance provider.
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Requirements for obtaining instant cash advance
Just as it is with commercial bank loans, there are specific requirements which a business has to fulfill before it can be considered for an instant cash advance. First and foremost, a company has to be such that accepts credit card payments whether Visa or MasterCard before it can think of applying for merchant cash advance. This is very important since the revenue of the business is more comfortable to track when credit cards are used to make purchases. And in most cases, when a credit processor is not helping to facilitate payments to the merchant cash advance provider, it could serve as the instant cash advance provider itself. It is sometimes advised that a business, partners with its credit card process to obtain a cash advance. This is, however, not necessary. Accepting credit card payments is not where everything ends. This is because business still has to be generating a significant amount revenue before it can be considered for an advance.
Most providers would insist that the business has to be processing at least $5000 worth of credit card sales each month to be eligible for an advance. New entrants also place theirs way below that value. Whatever the case is, a business needs to understand that the amount of instant cash advance it can have access to, is dependent on its monthly revenue because a company is typically allowed to borrow up to, two to four times its monthly revenue. For a merchant cash advance provider to determine how much the business is eligible for, it usual examines the income and expenditure of the company to know how much would be left to offset the advance without imposing starting on the cash flow of the business. There are still other minor requirements for obtaining a cash advance. For instance, a company ought to have been in operation for at least three months before it can be accepted for an advance. Also, it must have a physical location; and have a minimum credit score of about 500. Although the decision to offer an advance is not based on credit score, it is still required for a business to have a reasonable score to underscore its creditworthiness. Let us take a look at how merchant cash advance transactions work.
Read More: The Case for Cash Advance Companies
How instant cash advance works
An instant cash advance as the name implies is a transaction in which a business sells part of its future receivables to a merchant cash advance provider in exchange for a lump sum of cash. The sale is made to the merchant vendor at a discounted price. The transaction is discounted to account for the appreciation of money with time. Instead of paying a variable or fixed interest rate for the service as it is normally done in a bank loan transaction, the business pays a set fee in the form of a special factoring for the cash advance. If a business is in need of a certain amount of cash that amount is multiplied by a certain number which is the factor rate to arrive at the total payable amount. Once a business has been issued with a merchant cash advance, the merchant vendor makes daily deductions from its daily credit sales until the debt is repaid. Ideally, it is a fixed percentage of the daily credit sales that goes into the repayment of the debt. The instant cash advance provider usually looks at the amount that is borrowed, the volume of credit sales before deciding on what this percentage should be. From all of the above, it is quite clear how merchant cash advance is quite easy and straightforward as compared with a conventional bank loan.
Benefits and conclusion
The main reason why most small businesses opt for merchant cash advance is that it is effortless to obtain. In fact, it has been shown that the vast majority of companies that are issued with an advance often come back when in need of funding. The fact that lower credit scores are required also play a significant role. Businesses also do not have to worry about providing collateral or personal guarantees before accessing business funding. Most importantly, with instant cash advance, a company can be certain of securing business finance when it needs it most as approval rates are extremely high.
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