The merchant cash advance industry extended capital to small businesses, taking in $3 to $5 billion in revenue in 2015, according to the Center for Financial Services Innovation’s 2016 Financially Undeserved Market Size Study.
The Great Recession, which was caused by the financial crisis that started in 2007 and the subprime mortgage crisis in the U.S. that continued through 2009, ended with the collapse of the world economy’s banks and a severe loss of valuable assets. Due to the recession, bank regulations became stricter and fewer people, especially small businesses, had a more difficult time getting loans, mortgages, and credit. To fill the gap, alternative funding, like merchant cash advances, came to their rescue and grew in popularity.
Merchant cash advances (MCAs) continue to be popular, short-term funding options among small businesses, startups, and companies with less than stellar credit. Within as little as three days, a merchant cash advance puts money into your hand, so you can pay for the projects – an unexpected equipment expense, research a new product, or buy extra inventory around the holidays – you find most important. When you cash fast without hassles, apply for a merchant cash advance.
The Differences Between MCAs and Conventional Loans
With a traditional loans, the funds are paid back in fixed amounts made on an agreed upon schedule, such as once per month. A merchant cash advance provides a merchant with more flexibility because payments fluctuate directly, depending on its average credit card transaction volumes. An advance is beneficial for merchants because they are able to better manage their cash flow. When transaction volumes are low, your repayment amounts are smaller. So, if you tough sales month, you don’t have to come up with a fixed amount that would be required of a conventional loan.
Borrowers also get access to capital faster with advances because application process doesn’t require mountains of paperwork, like a typical loan. Also, merchant cash advance eligibility does not hinge very much on the applicant’s credit scores. Instead, funding depends more on the merchant’s average sales performance. Your credit score is only used to determine the interest rate you will pay. How it works is that a merchant agrees to sell a portion of its future credit card sales, such as $30,000, in exchange for a $25,000 lump sum from a finance company. The lender, then, collects its cut, often starting at 15% from every credit card transaction plus its fee, until the full amount is paid back.
Best Candidates for Merchant Cash Advances
The best candidates for merchant cash advances are those with credit scores below 600, businesses that have not been operating for at least six months, and those that don’t have many hard assets to put for collateral. Also, if you are business that takes in a high number of transactions each month, a merchant cash advance is a good option for you because the amount you receive and pay back fluctuates based on your sales. If you are having long-term cash flow problems, it may be best if you to explore other types of alternative funding.
When It’s Time to Apply
No business should have to worry about whether it can stay in business due to its inability to get the right funding to meet its needs. Get the funds you need to buy more inventory before the holiday season or hire a new employee with a merchant cash advance. Whether you want to move forward with a merchant cash advance or you want to explore other options, First American Merchant (FAM) can help. FAM offers approvals within three days, and offers numerous other types of funding, including consumer financing, ACH loans, and small business funding.