Short Term Business Loan for Bad Credit
Businesses need capital to function and keep doing business, sometimes only for a short term. When capital dries up, it can be hard to find funding, especially when the business is new, has had problems in the past, or its owner does not have a high credit rating score. Finding a resource that can provide small business loan money under less-than-ideal conditions is not easy. But it is possible with a Merchant Cash Advance loan. This is a very specialized type of funding that allows the borrower to get as much as $500,000 to help capitalize their company. For convenience, ease of acquisition, and fast receipt of funds, it’s can be hard to beat a Merchant Cash Advance loan.
What is a Merchant Cash Advance?
A Merchant Cash Advance (MCA) is a lump sum of money provided to a borrower in exchange for regular payments used to repay the debt. Repayment terms generally require a borrower to make payments from the business’ daily receipts from credit card or debit card sales. By repaying the debt daily, the lender knows the debt is more secure and less risky than if the lender has to wait from month to month to receive (or not receive) a payment. Merchant Cash Advances are short-term loans designed to resolve cash shortages for business. They are not intended for long-term financing of projects or growth of the business.
How Does a Merchant Cash Advance Work?
In most cases, a company should be doing a minimum amount of business transactions each month using credit and debit cards to complete transactions. By reviewing the company’s sales receipts, the lender knows how much business a company is transacting each month. The transactions should have enough profit to be able to deduct a small percentage of the transactions to be credited to the debt balance. For many companies, paying small amounts from daily receipts is much easier than coming up with a large sum of money to make payments.
Who Qualifies for a Merchant Cash Advance?
Merchant Cash Advances are designed for use by actively working companies that have cash flow of $5K per month or more. Some lenders will go below this level of activity, which is especially helpful for start-up businesses. A borrower’s credit rating should be above 500 or so, which means the borrower doesn’t need perfect credit or a high credit score to qualify for a Merchant Cash Advance. The most important aspect of funding from a Merchant Cash Advance lender is the business’ cash flow. For a business that may go through periods with restricted cash that ends up affecting cash flow, an MCA loan could be the perfect solution.
How Much Does the Cash Advance Cost?
Most lenders providing Merchant Cash Advance loans ask for between 1.1% to 1.5% of a company’s daily credit or debit card sales receipts. It can be a high cost to borrow, however, for short term capital provided to less-than-perfect borrowers, it is the only way for the lender to offset the risk involved in the funding. For a short-term loan, the cost of funds is reasonable if they are used for short term needs. Most merchants can calculate the cost of MCA into the prices of their services or products, like they do for credit and debit card processing fees, to help cover the expense of repaying the debt. This reduces the net cash cost of the loan and makes it much more affordable.
Benefits of a Merchant Cash Advance
One of the most obvious benefits of an MCA is time. For most borrowers, funds can be received in 24 to 48 hours or less. That’s an important benefit for companies experiencing cash crunches at critical times. Paying the rent or payroll can mean the difference between staying in business and going out of business. The most important benefits are:
- Fast funding
- Minimal qualifications
- Payments are based on company income
- Low Credit rating is acceptable
Negatives of a Merchant Cash Advance
The first thing companies pay attention to is the cost of borrowing money. The “interest rate” for the capital borrowed is high compared to traditional loans or financing. As the circumstances are not traditional, the risks involved in lending to a company with less-than-perfect credit will require ways to offset the risks. This is a loan without security like collateral or down payments involved that help reduce the lender’s risk. Here are the more negative aspects of an MCA loan:
- Higher interest rate than traditional loans
- Repayment required every business day
- No control over amount paid each day
Where to Get a Merchant Cash Advance Loan
Since the advent of the internet, acquiring an MCA loan has become much easier. Many companies offer MCA loans online. The result of the internet presence of so many companies funding MCA loans is that the costs of borrowing have become lower. Competitive conditions in the market place have reduced the fees and interest lenders charge for capital as well as the amount of funding available for companies to access. Some lenders can quickly provide $25,000 or more for a struggling business. That’s something unheard of in the past but it is a part of today;s economic opportunities. This article is sponsored by MCA.com which is a company with long experience in the MCA industry.
A Merchant Cash Advance Can Save the Day and the Company
When a company finds itself short of cash at a critical time, there are often few resources to turn to that can relieve the pressure. Traditional financing via bank loans or finance company lending may take too long and require too much documentation or too high of a credit score. When options for funding dry up, there is a resource that can fix the problem and keep things under control. While a Merchant Cash Advance may not be the right solution for some companies, many businesses use an MCA resource regularly because it makes borrowing faster and easier than traditional resources.