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Should You Use Cash Advances for Small Business Funding?

There are many different working capital products – small business loans, merchant cash advances, equipment leases, invoice factoring, to name a few. But how do you know what is right for small business financing? Usually, business owners look for credit lines or loans from the traditional institutions for funding their financial growth as these are available options for Small and Medium Enterprises. So businesspeople believe. But the truth is that getting a business loan from a local bank is almost impossible, but the opportunity to this exists – a Business Cash Advance!

Alternative business funding in short

A cash advance is an easy-to-qualify small business loan offered through your credit card. However, the Merchant Cash Advance Providers stand to that a MCA is not a loan; it is rather a certain amount of money advanced to the business account in exchange for a share of future sales.

Since recently “merchant cash advances” are pretty popular, especially for the minor and urgent needs of small and medium-sized businesses. An in-depth study by the Federal Reserve Bank revealed a minor attraction of entrepreneurs towards ‘lines of credit’ and small business loans, roughly 42 percent and 47 percent of the overall popularity. Moreover getting a small business loan or similar to it funding for small business will take months, and it is not guaranteed you will get it for sure. Cash advances are also on their way up, capturing the market at a respectable 57 percent.

According to the business stalwarts, the purpose should be the driving force behind a loan. Once the future has been visualized, it becomes easy for us to determine the approximate figure and the portion that goes into the job.

How Business Cash Advances work

The concept of the merchant cash advances isn’t synonymous to the usual loans, although both require timely repayment of the money. Cash advances are received from prospective future sales, and the provider such as is capable of drawing out money from the credit card transactions of the concerned business, in future. Payments, in this case, are usually made on a weekly or even daily basis.

Repayment of commercial loans is made by a percentage called Holdback, based on the credit card transactions. The value for the same might range from 5 to 20 percent but usually remains the same once both parties mutually decide upon a figure. For seasonal businesses, or subscription based business or even for home based business that may be not an option as such companies don’t have strong sales and hardly can pay a certain amount monthly. That’s where a business cash advance has an advantage.

Let’s take a closer look at how merchant cash advance from works. A business owner applies online by filling out a short application form and within hours he is contacted by representative. The application is usually approved the same day, and funds are deposited to the small biz owner’s account right after that.

How to qualify for a business loan? There is a very long list of documents you should provide a banker. However, to be approved for a business cash advance you may have bad credit, no collateral. The requirements as plain as day: 3 to 6 months of credit card processing statements, 3 to 6 months of bank statements, proof of identity (driver`s license), proof of business ownership and a voided check so the funds can be deposited in your account.

Summarizing all information mentioned above

Precisely speaking, merchant cash advances are fast business loans for such needs as procuring inventory, paying off workers, etc. are best suited for making use of financial aids. The businesses that strongly depend on upon cash in hand suit best for these advances. Overall, bigger firms with a yearly schedule are best served by business loans, more so for the transparency. It all depends on the user preference and the urgency. However, for any funding, it is always advisable to take a bit of time and read between the lines, be it a slow paced bank loan or the speedy credit-based financing.

If you need funding for your business, give us a call 212.865.3863 or visit our website to get started!

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