Contents
Introduction
The first step in starting a business is obviously coming up with an idea for it. But what about the second step? How will you raise the money to make your dream a reality? If you’ve read this far, we’re willing to bet that you’re considering getting a business loan. And there’s nothing wrong with that! In fact, we hope that after reading this article, you’ll have all the information necessary to make an informed decision about whether or not financing your new venture is right for you—and if so, how best to do it.
Merchant cash advances may help your firm make ends meet.
- If your firm is struggling, consider a vendor cash advance.
- You’ll receive a set sum upfront and repay the loan as a percentage of your total income.
- MCAs may be your best option if you need fast cash but don’t qualify for small company credit.
Your company is not alone if it is experiencing financial flow problems. U.S. Bank found that 82% of tiny companies collapse due to insufficient financial flow. When monthly expenditures surpass monthly income, you will experience cash flow problems. Weak sales or clients getting behind on payments could be to blame. Your company can’t survive without enough revenue.
You may be thinking about applying for small company financing if you’ve been struggling with cash flow. A dealer cash advance may be a good choice for your company. However, proceed with caution because MCAs are pricey and are not governed by federal law.
When should you consider getting a business cash advance?
Despite the negative connotation, MCAs can be useful to your company in certain situations. For companies that need funds quickly but don’t meet the bank’s lending requirements, such services may be a decent choice.
Regardless of loan approval, you may need money instantly. There is much less documentation involved with MCAs compared to traditional small business financing.
In general, MCAs are a viable choice for companies in search of quick money to cover unexpected costs. A merchant cash advance could be useful if you operate an irregular company, have trouble maintaining consistent financial flow, or have a large, one-time expenditure.
Where do you start in acquiring a dealer cash advance, and what do you need?
An MCA is much simpler to obtain than a small business credit because there is no requirement for a lengthy track record of company operations. You don’t necessarily need a spotless credit background to be approved.
Provide six months of credit card bills. Even if a small company owner’s credit is less than perfect, having a solid sales record can help them get approved for a loan.
You will need to find a non-bank provider to get an MCA because most banks don’t provide them. You can complete a single application and evaluate offers from various lenders on a lending platform.
When you’ve finally settled on a provider, you’ll need to complete an application and supply the following details:
- Identity Documentation
- Where to find the contact data
- What you’re hoping to take
- Data about the Business
- Documentation from financial institutions detailing the handling of payments
- Profit and loss statements
The benefits and drawbacks of business cash loans
You should weigh the benefits and drawbacks of alternative lenders carefully before deciding to work with one.
Pros:
- The registration and clearance times are extremely quick. Applying for an MCA is easy, and you can use it immediately. Minimal documentation is required for MCA loans, making it possible to get the money in as little as a few days.
- They can serve as an option to traditional small company financing. Small firms without financial history may have trouble getting funds. An MCA may be possible if you can show many credit card sales.
- They’re adaptable to any purpose. Borrowers of an MCA are free to use the funds for any purpose they see fit. You can spend the money on whatever benefits you most.
- No security is needed for these loans. There is no need to put up any security other than a promise to pay back a certain proportion of your future credit card bills.
Cons:
- Expensive. Merchant cash advances with high rates can be expensive. Even with a low rate, the APR could be 35%.
- No authority regulates them. Your MCAs follow the Uniform Commercial Code. They are not covered by the Truth in Lending Act or other customer protection laws. Many business owners find MCAs confusing and hard to execute.
- They won’t aid business credit. An MCA won’t enhance your company’s credit because your supplier won’t report on-time payments to the major credit bureaus. It won’t hurt your credit.
- They may worsen money flow issues. An MCA may temporarily improve cash flow, but it may worsen it. Constantly paying the needed amount can burden your company.
If you are considering a business loan, make sure you know what you want and how it will help your business grow
Before getting a business loan, it’s important to make sure you know exactly what you want and how the money will help your business grow.
- How much do I need? This is probably the most important question of all. If you don’t have enough money to cover your expenses and growth, then taking out a loan might not be the best idea for now.
- What am I going to use this loan for? It’s also important that when considering whether or not taking out a loan makes sense for your company (and more importantly your bank account), consider how much of each payment goes toward interest and principal payments versus just paying off interest alone. How would taking out one affect my ability or inability to take care of myself in terms of paying bills or saving up some extra cash?
Conclusion
If you’re looking to grow your business and need capital, a business loan could be right for you. It can help you expand your operation or get started with new equipment or facilities. However, there are many factors to consider before applying for one including credit score requirements and repayment terms. If this sounds like something worth exploring, take some time today to learn more about how these loans work!
