Since the recent financial bubble burst that sent the economy into recession, it has become increasingly hard for several entrepreneurs to find the right amount of capital to invest in new ventures. Banks have become very cautious regarding whom they lend money to and as a consequence the entire process has become extremely rigorous. Oftentimes good ideas do not get funded because of the stringent requirements which the entrepreneur does not meet.
In this scenario, the old concept of a merchant cash advance has been resurrected in the form of a business cash advance. Now, many authentic business cash advance institutions have been set up that help provide working capital and sufficient funds for small businesses by providing cash upfront in exchange for a cut of the future credit card sales until the loan is paid off. There are quite a lot of advantages that a business cash advance has over the more traditional bank loans, hence the increasing popularity among young entrepreneurs with cash flow problems. Some are listed below:
- Easy Application
As opposed to the rigorous and strenuous application procedure of applying for a small business loan at a bank, the application process at almost all business cash advance lenders is very simple. The amount of paperwork that a business cash advance requires is very little in contrast to its more traditional counterpart. The application is generally a couple of pages long and all that is required are bank statements and income statements through which cash flow can be verified.
- High Approval Rates
There is basically no need to show your previous credit history and debt-to-income ratio. This makes it a valuable tool for those with some red flags in their financial history.
- No Collateral At Stake:
- No Personal Guarantees:
Apart from no collateral, business cash advance does not require personal guarantees from others while requesting a loan. Although in individuals are liable in case of any fraudulent activities.
- Quick Access To Cash:
In contrast to the longer period of time in which cash is doled out by a bank, a business cash advance lender provides the required funds in a relatively short period of time. Depending on how much the requirement is (most lenders have a minimum of $5000), the cash can be available anywhere from a couple of days to within a week.
- Does Not Affect Your Credit Rating:
Unlike a traditional small business loan from a bank, the loan acquired through a business cash advance does not affect your credit rating. Although it will get you in trouble if there are problems with repayment, but it will not affect your credit score.
- Less Scrutiny On Where The Cash Is Spent:
The lender does not bother with where the money is spent; the only concern for the lender is a smooth repayment process. In traditional bank loans, the bank can monitor if the money borrowed is being spent on exactly what it was borrowed for. In a business cash advance model, the lender does not require such details. This further allows the entrepreneur a freer hand over his or her own budget. The funding which was initially required for advertising can easily be used for overhead costs if need be.
- Sales Oriented Repayment Plan:
The lender of a business cash advance receives payment in the form of a fixed percentage off credit card sales. This process can be automated and relieves the entrepreneur from the stress of having to make payments in time. One of the biggest advantages of this is also that the repayment is sales oriented. In times when the sales are quite low, or for any other reason accepted by the lender, the percentage paid can be reduced. This flexibility is not found in a traditional bank loan where a fixed amount has to be paid without fail.
An interesting aspect of the business cash advance practiced by some lenders is that they offer renewals i.e. an injection of extra cash after a specified period once they see that the repayment is going well. This is quite beneficial for an entrepreneur as he or she does not need to look anywhere else for more funds if required. Once again, a traditional bank loan does not provide such facilities usually.
On the whole, a loan secured through the business cash advance procedure is a very enticing alternative to a traditional bank loan for any young entrepreneur starting a new venture or revamping an older one. It provides ready cash with a flexible repayment plan. However, it does have its limitations such as the fact that it is only suited for ventures with ample credit card sales. The easy repayment method does prompt the entrepreneur to increase sales so as to pay off the loan as soon as possible. While a traditional bank loan is still appropriate for bigger amounts, this alternative is a wonderful tool for those just starting out and facing lack of funds.