Most small businesses find it very difficult to get funding from high street banks, especially after the financial crisis of 2008. This has given way to the emergence of many alternative lenders who are ready to finance businesses with lesser restrictions.
Merchant cash advance is one form of alternative business funding that makes it easy for business owners to access funds whenever they are in need. Merchant Cash Advance providers who get in touch with these business owners through merchant cash advance leads provide these funds in exchange for a portion of the future credit card sales of such businesses.
The best part of opting for alternative funding is that you don’t have to wait for longer to obtain your funds. With limited restrictions and paperwork, the approval process becomes faster and the amount gets released without any hassles. Nevertheless, with so many alternative funding options it might get tougher to pick out the right option. Here are a few things you need to know about alternative business funding before you make your decision:
Not every small business might be eligible for alternative business funding. Any alternative funder who gets in touch with you through merchant cash advance leads might want to assess the creditworthiness of your business before giving you the funding. He will go through your bank statements, your financial statements, and your credit rating, to make sure you will be able to pay back the amount that he lends to you via alternative funding.
You should be in business for a minimum period of 1 to 2 years in order to be eligible for alternative funding. Nevertheless, there are providers who offer loans to startups too. If you are trying to get in touch with such alternative funders, take note that such funds may come with a maximum credit limit.
Most small businesses that have no assets to offer as collateral find relief in alternative business funding. Nevertheless, you may have to establish your affordability by proving that your business has a profitable standing. If you do, you should be able to get funds worth about 10 to 30 percent of your annual turnover.
The risk in case of alternative lending is higher than traditional lending because of lack of security. As a result, the interest rates and fees charged by the alternative lender would be high. Some alternative lenders may even ask for a personal guarantee to reduce their risk in case you default. Make it a point to consult your lawyer before giving any such guarantee.
As a small business, you may need access to working capital as and when there is a need to expand or grow your business. It would, therefore, make sense to opt for a revolving credit facility wherein you can withdraw funds up to a pre-approved credit limit. Alternative lenders who provide such credit facilities generally charge no setup fees. You will, however, have to pay the interest for the amount that you withdraw. When compared to a fixed business loan, this rolling agreement seems to be a better option since you will get a reliable source of finance that you can dip into, whenever you are in need.
The interest rates of revolving credit facilities tend to be higher than other options of funding. Nevertheless, if you use it sparingly, you may end up with costs that are lower than those of any other fixed business loan.
Alternative business funding, especially merchant cash advances, seem to be a great option for businesses that make a decent amount of sales through card transactions every month – especially restaurants, retail businesses, and businesses from the leisure sector. However, before you sign up with any of the providers who come to you via merchant cash advance leads, it is important that you go through their terms and conditions carefully and understand what you are getting into.