Every morning, when I leave home for work, I make a stop for a cup of coffee near my office. I have to choose between El Pollo Loco Fast food place and a local coffee shop. I always pick the local coffee shop. During my daily stay of around ten minutes there, I always notice the owner of that coffee shop, who himself is busy serving the customers and completing orders.
After seeing this, I feel nice about my choice as a customer, but I feel pretty bad about how our banking system is treating small-business owners like him. I feel that the life of a small business owner is very tough these days, but still there is a hope that this will get better soon.
What if the owner of that small coffee shop is looking for a small business loan to expand his business? Hire new workers so he can focus more on the operational side of his business? If he is looking to purchase some sort of asset for his business?
While going to turn on to anyone of the above options, he cannot run to a bank for getting a small business loan as banks are not anymore interested in taking risk by investing in small restaurants and coffee shops. Also, he will have to pay collateral and other application fees, which is probably not possible for a small business owner like him. However, if that coffee shop owner gets lucky he may get approved for some unsecured loan up to $25,000. The good side of this loan is that, the rates are reasonable. The bad side is that this kind of loan requires a period of more than 3-4 weeks and lengthy paperwork, and shop owner may not have time to wait.
In these circumstances, he can best turn to one of the merchant cash advance providers that are having a good reputation in lending market and can provide an unsecured cash advance in a couple of days. They will just need to look at latest merchant processing statements of that coffee shop owner and bank statements to make a possible cash offer. In my views, my coffee shop’s owner will get the immediate offer of $20,000 in exchange for $25,000 of future receipts.
It sounds great because the actual figure he can get $20,000 immediately, and it will only cost him $5,000. In return, he will need to pay 25% more money in a period of more than 12 months, other than he is borrowing, A merchant cash advance is the only convenient and smooth option for a small business owner to get his business the working capital it needs. By buying a future portion of his credit sales, a merchant cash advance provider will offer his business with an upfront, lump sum of cash. This whole process will offer him the funds his business needs with ease and speed; a merchant cash advance is usually repaid in less than 16 months. With an agreed upon small percentage that works with the flow of your business, payback is just as smooth.
However, the merchant cash advance business is competitive. You need to ensure that you’re getting the best possible rate. The bad side of today’s credit markets is that many small business owners have no option but to consider these kinds of loans. In our work at Merchant Advisors, we often find that there is no good option. Still, whenever I am forced to put a client into one of these types of loans, I think about the owner of my coffee shop and the energy he is putting to build his business, as well as his staff of three employees who count on him. It’s true that the merchant cash advance lenders and the hedge funds that over rate many of them are fulfilling a need in today’s market. This is still a way better option for small business owners to consider.