As more and more people turn to entrepreneurship, access to business funding is also on the rise. Traditional lenders such as banks have tightened credit in the past years so cash-strapped entrepreneurs turn to other alternatives to solve one crucial problem – finding cash. While commercial banks squeezed their financial support for small businesses, development companies, micro lenders and merchant cash advance providers opened their doors, filling the void and helping entrepreneurs gain access to cash.
Small business owners such as restaurant operators, dental service providers, promotional product owners, and other small business operators looking for alternative sources of business capital are now able to secure additional cash quickly without having to offer any collateral. Companies such as cash advance providers offer such services and are preferred by more business owners.
What exactly is a merchant cash advance?
A merchant cash advance (or MCA, also called credit card factoring) is a financing option often availed by small to medium-sized businesses. It involves the purchase of a portion of the merchant’s future credit card receivables at a discount. Every time the merchant receives payment from customers via credit card, a portion of the sales is forwarded to the MCA provider until all of the purchased receivable is repaid back. A merchant cash advance however, is not a loan mainly for the following reasons:
- The MCA provider requires no personal guarantee or collateral from the merchant. This means that the provider risks losing its investment if the merchant goes out of business. This is one of the reasons why providers have a minimum set of requirements before doling out the money. These are:
- The merchant must have been in the business for the past year;
- The merchant has a minimum of $2,500 in credit card sales every month;
- The merchant has no outstanding rental obligations and has at least a year remaining on its lease, and;
- The merchant has no open bankruptcies or foreclosures.
- Merchant cash advances have no fixed payment schedule. Repayment follows the merchant’s daily card sales volume. In other words, the provider receives higher repayment amount when merchant sales are up and receives a lower repayment percentage when merchant sales are down. There is no late payment, thus, no additional charge or penalties as opposed to a fixed-term loan where a fixed dollar amount must be paid on or before its due date regardless of the merchant’s sales volume.
- There is no business-use restriction. The merchant is free to use the money in any business-related expenses – purchase of additional inventory, new equipment, paying off debt, office remodeling or emergency subsidy among others.
Most reputable MCA providers such as Entrust Cash Advance can qualify a business for a cash advance quickly and easily. The application process is quite simple. No tedious paperwork and no credit score or credit check involved. You just have to choose the right provider.