The high-risk sector is lucrative, but it is also marred with difficulties. Among the many challenges merchants in risky industries face is raising funds.
Banks and other traditional lending institutions rarely issue loans to businesses that have a large probability of failure, and when they do, they usually choke up the recipient with high-interest rates and strict requirements. Business owners are often left grappling to find alternative sources.
If you ask an expert, they’ll likely advise you forego high-risk business loans, and instead apply for a cash advance. And below are some reasons why it would be a good idea to heed this counsel.
- Easier to apply
To convince commercial lenders that you’re capable of repaying the loan in time, you will be required to present financial statements, tax returns, collateral and a lengthy business proposal. The application process is, therefore, long and complicated.
On the other hand, applying for a cash advance is painless and straightforward all the way. A company like First American Merchant will only ask for your monthly credit card returns and a measure of how long you have been in business.
- Faster access to cash
Because an advance provider asks a few questions and has minimal paperwork to process, it typically takes a day to get your application approved.
Bank loans can take weeks, or even months to materialize, and are not a good idea if you need immediate funding to cater for sudden expenses or seize an unexpected opportunity.
- A better chance of approval
Because of the high-risk nature of your business, you have a very slim chance of scoring a business loan. Things can get even more intricate if you have bad credit.
Getting a cash advance is easier because what is relevant to a provider is the performance of your operation, and not credit scores or risk levels. Any stable business can, therefore, qualify for an advance.
- Payments based on revenue
A business loan demands to be serviced with fixed installments every month, regardless of whether proceeds are high or low. But because cash advances are paid with a fixed percentage of individual sales, the payment amounts fluctuate with the revenue a business earns.
In the peak season, the merchant pays a larger monthly sum, and in the off-peak, a smaller installment. A cash advance provider is, therefore, more a partner than a financier.
Bank loans can be a viable source of long-term business funding, but when a merchant needs to quickly and safely finance their high-risk enterprise, cash advances offer an even better alternative.