Prior to the financial crisis of 2008, if you needed more money than you had available, you went to a bank and you got a loan. Whether you were an individual or a business owner, that’s the kind of small business financing you sought. After the crisis, however, banks tightened the purse strings , and lending alternatives presented themselves.
The space of small business financing saw the emergence of different types of funding, with some early models founded to offer the types of loans that banks would have previously extended, but no longer would.
The different types of lending that became available or include:
- Equity crowdfunding
- Accounts receivable funding
- Invoice factoring
- Asset-backed lines of credit
And that’s just to name a few.
But there is another type of lending that exists that might better fit small businesses who can’t get the money they need through one of those avenues. It’s called Merchant Cash Advance, often called the Same Day Cash Advance.
Credit scores are not a factor
Merchant Cash Advances prove to be a valuable way for some established small businesses when the other ways aren’t what they’re looking for.
A less than stellar credit score can take a business out of consideration for most traditional loans, but that isn’t a factor with a cash advance. The cash received is based on a company’s receivables. Repayment is based on a percentage of the company’s future credit card transactions, often reclaimed by the advancing company through a percentage of each credit/debit transaction until that day’s sum is reached.
What follows is a list of times when an advance would be preferable to a small business loan.
When time is of the essence
The process of securing a loan of any type is a lengthy process, but sometimes your business needs cash now. A valuable piece of equipment has failed or the valuable investment opportunity that has presented itself will be long gone in the six or eight weeks it might take to obtain a loan. Merchant Cash Advances are almost always approved within 24 hours, and you have the cash in hand within 48 hours.
No collateral required
Since the payments are based on a percentage of future receivables, no collateral is required to secure the advance.
Spend the money how you want
Companies who extend cash advances don’t ask you how you’re going to spend the money. Your books prove to them that you can do the business upon which the advance will be paid, and they extend the money in good faith that it will be used to strengthen that business.
Small business financing is usually very involved, and it gets more so at times when unexpected costs arise. No matter how well we prepare for them, these situations often require cash flow sooner than can be attained through crowdfunding or a loan of any kind. In those situations, merchant cash advances are ideal for business owners to keep things moving and the money coming in.