Top Seven Reasons Of Picking A Merchant Cash Advance Over A Business Loan

By Author: Daljeet Sidhu
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The recession is an arduous time for businesses trying to get loans. Help is at hand in the form of the new financing source on the block - merchant cash advance (MCA), also called a business cash advance. It is a new avenue for business financing. MCA differs from ordinary loans as it is paid back as daily cut of credit card sales. Companies can apply for MCA if they have been around for at least 9 to 12 months and see good credit card sales every month.

Procuring traditional loan is a major undertaking for small and medium sized companies with its long application cycle, stringent acceptance standards, and limited availability. On the other hand, a merchant advance can be obtained with negligible documentation and within a short approval period. MCA works well for small businesses looking for instant financing as high as $250,000.

Following are the top 7 benefits of applying for a merchant cash advance instead of a traditional loan:

1. Short approval cycle: The processing of MCA does not take more than a few days as opposed to the long waiting periods needed for conventional loans. Some providers sanction ...
... the advance within 24 hours and transfer the money in 7 business days.

2. No interference in how the money will be used: MCA providers do not get into the hows and whys of the likely usage of the advance. This is the right of the business owner. The owner can make use of the money for settling lease payment, catch up on tax payments, restock inventory, fund growth, etc. or even to settle some personal obligations.

3. Simple application process: The saying "No pain, no gain" does not apply to MCA. Banks demand elaborate business proposals and ask multiple prying questions to get a grip on the the past, present, and future plans of your business before considering you for a loan. On the other hand, MCA providers are only concerned with the monthly credit card receipts and the time in business. They expect you to be at least nine months in business and averaging at least $5,000 in monthly credit card receipts. Paperwork such as tax returns or account statements is not required. There are no secondary expenses or application fees as seen in the case of conventional bank loans. Some providers may even approve the advance online.

4. High approval rate: Low FICO scores, previous bankruptcies, and poor credit history do not disqualify MCA applicants. Providers only evaluate the business performance to approve funding. For example, a business averaging $50,000 in credit card sales per month in the previous year can get approved for 1.5 times the amount or $75,000. (Numbers could be different across providers).

5. No collateral required as security: MCA providers cannot take over business or personal possessions if there is a business failure and the advance is not paid. This is a major advantage for small sized businesses. No collateral or personal guarantees need to be pledged. MCA is the equivalent of sale of future revenue and not a loan.

6. Automatic deductions for repayments: Settlement of merchant cash advance is straightforward for both the provider and the seller. Either the business agrees to remit a prefixed cut from its monthly credit card receipts or directions are provided to the credit card processor to divert the repayment amount each month. This eliminates the need to write payment checks, and possibility of paying penalties for missed installments.

7. Repayments based on credit card revenue: The repayment amount increases or decreases each month based on the credit card sales volume. If the sale is good, the repayment amounts are larger and if sale drops, repayments get adjusted accordingly to a smaller amount.

Merchant cash advance is a blessing for small businesses that do not have the resources to avail loans from banks and other financial institutions. As the economic recession clamps down harder, MCA is proving to be a flexible and viable financing alternative.
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