The process of getting a small business loan or financing today is far from what it was ten years ago. Thanks to advances in fintech and online lending, funding can be in your account faster than ever before. Now that we’re over ten years past the Great Recession and into the coronavirus slowdown, where does the merchant cash advance industry stand in 2020?
Like small business loans and other financing options, merchant cash advances are readily accessible. For fast-growing businesses that simply can’t wait around for banks to approve an SBA loan, advances can be a game changer. The statistics prove it—according to experts, they generate $5-10 billion in capital annually.
Since the initial boom in 2008, the merchant cash advance industry has come a long way. What may have started as a last resort has become a valued and realistic financing option for small businesses in all industries and locations.
Before diving into the recent changes of the merchant cash advance industry within the financing world, it’s important to understand what exactly an MCA is.
Simply put, the merchant cash advance is a financing option (not a loan) that can be available quickly to give small businesses much-needed capital. When you receive a merchant cash advance, you’re selling a portion of your future debit and credit card sales. In return, you’ll receive a lump sum of cash in the form of an advance.
Unlike other financing options on the market, merchant cash advances have no defined insurance rates, don’t require personal guarantees, offer flexible payment terms, and can be used for any growth-related expense.. For some businesses, a merchant cash advance may actually be the best option on the table.
To the same token, not all merchant cash advances are the same program. Based on where you go, you can qualify for various products with wide-ranging terms. Because merchant cash advances aren’t federally guaranteed, lenders have the freedom to customize the terms based on your needs.
Daily payments can seem like a big commitment, but in many ways, they’re actually better than weekly or monthly agreements.
When you make payments monthly, you’re putting aside a large chunk of cash. This might prevent you from covering other growth-related expenses in your business, or even put a strain on payroll. The same is true with weekly payments, albeit to a lower degree.
Daily payment agreements allow you to pay a much smaller amount every day, meaning it’s far less likely you’ll scramble to find cash at the last minute. In other words, it’s less disruptive to your cash flow.
It’s also worth noting that payments toward your merchant cash advance will come directly from your debit/credit sales. Rather than set amounts, payments will depend on your sales earning for the day.
There’s a common misconception that the merchant cash advance industry is equivalent to loan sharks. In reality, though, that’s simply not true.
As time has passed, interest rates for this readily available financing option have dropped quite a bit. Rates are now competitive, depending of course on the situation of the business owner applying and the lender’s guidelines. The higher your sales, credit score, and time in business the lower risk you pose to the lender. There are more variables that factor into the interest rate, but overall, it’s possible to capitalize on low rates.
Some lenders may charge a lot more than others, meaning it’s important to do your research before finalizing an agreement.
While predatory companies can still bill themselves as lenders or brokers to obtain information or scam your small business, the merchant cash advance industry isn’t the unregulated wild west it once was.
Thanks to greater oversight, small business lenders and financing companies are now held to a higher standard.
The Small Business Financing Association Broker Council, which National’s CEO and co-founder, James Webster, co-chairs, is one such example. The SBFA educates policymakers about the alternative lending and fintech industries, advising them about implementing new legislation and regulations to protect small business owners from predatory practices.
However, that’s not to say that every offer will be the best on the table. It’s still in your best interest to research your lender and ensure that they’re a trusted, honest source of capital before making a final decision. Be sure to read through reviews and other information.
To learn about the red flags you should look for during a sales pitch, be sure to read National’s Rip-Off Report.
It’s not easy to find a business opportunity that could push you to the next level. But if pursuing a new opportunity involves upfront expenses, then it’s not that simple. The merchant cash advance industry helps small business owners capitalize on new opportunities by making funding accessible in a realistic time frame.
As a business owner, it’s important to approach every opportunity by the numbers. If you have an opportunity to increase revenue by $500K, and it will cost $100K, then it’s a no brainer. Even after paying back interest, you’ve still made significant momentum in growing your business.
By utilizing a merchant cash advance or other financing option, you can take advantage of these opportunities as they come, instead of missing out. Chances are, as you start exploring new opportunities, even more will surface—giving you the ground you need to move forward.
When interest rates appear expensive, many small business owners view selling equity as a shorter, less expensive road to the same destination—extra capital. In the grand scheme of things, though, selling equity in your business can cost you significant long-term profit.
While selling equity can give you a fast cash injection, you’re giving up profits for the long term. After investing in your business, your profits will increase. But if you don’t have complete, undivided access to your profit, then you’re not fully benefiting from years of hard work. Even though it seems like free money, selling equity can actually be a financial burden forever—you’ll have to cut a percentage to co-owners.
But by selling equity, you’re not only forfeiting profit—you’re also resigning full control. Depending on how much equity you sell, you may lose the power to make decisions. This can put your business on a different track than you initially envisioned.
The merchant cash advance industry empowers business owners to acquire the resources they need without giving up profit or control.
Ridiculous requirements aside, banks make applying for a small business loan a difficult and time-consuming process. The merchant cash advance industry recognizes that’s not what small business owners deserve.
When you apply through an alternative or fintech lender, the process is simplified and streamlined.
At National, we find the best rates, terms and amounts through our network of 75+ lenders. You can learn your options in minutes and get funded in just a few hours—it’s really that simple.
Through the Performance Advance—an exclusive financing option available only through National’s network—you can qualify for double the amount based on your business’s performance alone. There are no set daily payments, personal guarantees, or bad credit score restrictions, and startups at least 3 months old can qualify.
Get started taking your business to the next level by applying now!
National Business Capital is the #1 FinTech marketplace offering small business loans and services. Harnessing the power of smart technology and even smarter people, we’ve streamlined the approval process to secure over $1 billion in financing for small business owners to date.
Our expert Business Financing Advisors work within our 75+ Lender Marketplace in real time to give you easy access to the best low-interest SBA loans, short and long-term loans and business lines of credit, as well as a full suite of revenue-driving business services.
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Matt Carrigan is the Content Writer at National Business Capital & Services. He loves spending every day creating content to educate business owners across every industry about business growth strategies, and how they can access the funding they need!