Top Seven Advantages of Choosing a Merchant Cash Advance Over a Business Loan

By repair credit blogger | October 22, 2010

The economic slowdown is a daunting time for businesses trying to get loans. Help is at hand in the form of a new loan option – merchant cash advance (MCA), also called a business cash advance. It is a novel avenue for business financing. MCA differs from traditional funding as it is paid back as daily percentage of credit card revenue. Companies can apply for MCA if they have been in business for at least 9 to 12 months and see good credit card revenue every month.

Procuring a bank loan is an uphill task for small and medium sized businesses with its drawn out approval cycle, stringent approval standards, and limited availability. On the contrary, a merchant advance can be obtained with negligible paperwork and within a very short time frame. MCA is a blessing for small businesses that need instant funding to a maximum of $250,000.

Following are the top 7 advantages of getting a merchant cash advance rather than a regular bank loan:

1. Short approval cycle: The processing of MCA is finished in one week as opposed to the weeks or months for regular loans. A number of providers sanction the advance in less than one day and transfer the funds in 7 business days.

2. No questions asked on how the money will be utilized: MCA providers are not concerned about the likely usage of money. It is the business owner’s right to use it as she desires. The owner can make use of the cash for paying past due bills, catch up on tax obligations, restock inventory, fund development, etc. or even to settle some personal debts.

3. Trouble-free application process: The saying “No pain, no gain” does not ring true for MCA. Financial institutions such as banks insist on detailed business proposals and ask several prying questions to get a grip on the the past, present, and future plans of your business before issuing a loan. On the other hand, MCA providers are only interested in the monthly credit card sales receipts and the time in business. You should have been at least 9 months in business and averaging a minimum of $5,000 in monthly credit card sales. Documentation such as tax returns or financial statements is not necessary. There are no secondary expenses or application fees as seen with traditional bank loans. Some providers may even approve the advance online.

4. High approval rate: Low FICO scores, bankruptcies, and poor credit history do not disqualify MCA applicants. Providers value your existing business performance to approve the cash advance. For instance, a business that churns out an average of $50,000 in credit card receipts per month in the previous year may be approved for 1.5 times the amount or $75,000. (Numbers may vary for different providers).

5. No collateral required as security: MCA providers cannot take over business or personal assets if there is a business failure and the advance is not paid. This is a big plus for small sized businesses. No collateral or individual guarantees need to be staked. MCA is treated like a purchase of future revenue and not a loan.

6. Automatic deductions for repayments: Repayment of merchant cash advance is as easy as it can get. Repayments can be made in two ways. Either the business consents to remit a prefixed cut from its monthly credit card transactions or the credit card processor is directed to divert the repayment amount each month. This eliminates the need to mail payment checks, and possibility of paying penalties for late payments.

7. Repayments based on credit card revenue: The repayment amount changes through the repayment period based on the volume of credit card sales per month. When the going is good, the repayment amounts are larger and when the going is tough, repayments get adjusted accordingly to a smaller amount.

Merchant cash advance is a blessing for small businesses without the resources to get approved for loans from banks and other financial institutions. With the credit crunch running longer than predicted, MCA is proving to be a flexible and viable funding alternative.

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