Businesses are often in need of a loan. It could be for working capital, purchase of equipment, buying inventory, renovations or perhaps an acquisition, a business will require cash to finance the project. Bank loans are helpful but not easy to secure. Small businesses especially have a tough time getting approved for bank loans because of the strict requirements and long timelines. The downturn has also spun a credit crisis that has aggravated the situation further.

Some of the available small business loans are lines of credit, term loans, equipment leasing, secured or unsecured working capital loans, SBA loans, and franchise startup loans. All these loans need considerable documentation including review of credit history, income projections, collateral as security, a convincing management and a notable growth plan. Moreover, businesses may have to approach multiple financial institutions before they receive a loan since the approval rates are not very bright.

There is one other loan choice that could be suitable for your business if you abhor the documentation and the time it takes to obtain a traditional loan or if you just cannot wait for weeks to get it approved. It is called merchant cash advance (MCA) or business cash advance. It is a much more attractive alternative for small businesses with immediate funding needs. Many banks, private companies, and credit card processing companies offer such financing. The interest rates are higher than bank loans, but the difference is not as much as it used to be a few years ago. The paperwork involved is quite minimal, and credit score… well, if it’s good, great. If not then it will not ruin your possibility of receiving an advance though it may affect the amount of cash advance sanctioned. The approval cycle is quite short – from a few hours to only 3 days! And the cash is available in your business’s bank account in a few days to a week. That’s just what makes MCA so popular – funding is available when needed the most.

The one prerequisite for the acceptance of an MCA application is a record of good credit card sales during the past nine months (typically an average of $3000-$5000) and at least nine to twelve months of having been in business. The MCA or merchant capital provider buys a percentage of your future credit card sales receipts for the advanced amount. The repayment is managed at the credit card processor’s end without any need of involvement of the business or the cash advance provider. This relieves the business of having to keep track of payment dates or the payments. Another great characteristic of an MCA is that the monthly payment fluctuates based on monthly credit card receipts and is fixed as a percentage of the same. Cash advance recipient is relieved of the stress of meeting a predetermined monthly payment since it can vary depending on monthly sales.

Since merchant cash advance is a purchase of future revenue, its providers are not regulated under financial loan laws. No rules or regulations even govern the amount of interest MCA lenders can charge a business. It is best to work only with reputable providers to avoid being ripped off. Peruse the contract with a fine tooth-comb to make certain that there are no hidden costs or confusing terms and conditions.

The merchant cash advance industry is gradually maturing and many larger players are making efforts to regulate it to some extent. As a result, MCA is fast becoming a mainstream source of funding for businesses of all sizes.

Are you anxious that the tightened restrictions on bank loans post the global economic recession will hurt your business finances? Do you fear that risky Small Business Association (SBA) loans will be more trouble that its worth and not solve the financial issues of your business? Have you considered Merchant Cash Advance (MCA), also called business cash advance, as a potential funding option for your business? Are you unable to decide between SBA loans and MCA? This article can help you decide which option is more suitable for your business and can give it the capital needed to develop and thrive.

Look at the following points when choosing between an SBA loan and MCA.

Required Financial Documents

Well established businesses are expected to submit records of current debts, outstanding balances, and installment schedules and some collateral that can be offered to the bank. New organizations have to submit a business plan that included details of monthly cash flow predictions for the initial two years when submitting a request for an SBA loan. To determine your eligibility for the loan, lenders get information on credit card debt, liquid assets, personal loans and monthly statements, tax files, and holdings of real estate.

Merchant cash advance providers ask for only two credentials while filing your application. These are monthly credit card processing receipt volume and longevity of the business. These two factors by themselves will verify your eligibility for merchant cash advance and also help determine the amount of the advance.

High Approval Rate

Banks are careful lenders. The SBA is only a mediator. Your loan will be approved only after convincing the banks or brokers that you will repay each penny of the loan. The quantity of financial documents expected coupled with the lender’s watchfulness lessens the chance of your SBA loan request being approved. The economic slump has only added to the challenges of SBA loan hopefuls.

On the other hand, MCA providers are only concerned about your credit card receipts and the number of months the business has been running. Another advantage compared to SBA loans, merchant cash advance rules do not consider low FICO and former bankruptcies as rejection criteria for the application.

Repayment Flexibility and Little Risk

SBA loan does not come with the flexibility of negotiating repayment terms once it has been processed. The installment timetable is fixed and incurs serious fines on breach. Banks may cease and sell off your business assets. The same can also happen to your personal assets such as your home and vehicle can be auctioned in case of loan default, thus making SBA loans very dangerous in an economically weak environment.

Merchant cash advance comes with a flexible repayment schedule. Each month you are obligated to pay an agreed upon cut of your credit card receipts to the provider. Your repayment amounts fluctuate as when your business is flourishing, you pay more. When your business is going through a lean sales phase, the repayments become smaller and don’t stifle the business further. The possibility of failing to pay is very small.

Merchant cash advance impacts profit margins but is less risky

MCA repayments do impact profit margins to some extent. But on the other hand, defaulting on SBA loans can cause the closure of your business. Merchant cash advance offers a more desirable, low risk, and flexible financing choice relative to SBA loans. Save yourself from potential trouble by ensuring you give careful thought to MCA before submitting your SBA loan application.

Working capital management and business financing are rarely either simple or straightforward, and our concise descriptions are not meant to suggest otherwise. This report was designed to produce a concise overview of several complex small business financing and working capital issues by describing these difficulties in six words. Despite the sometimes overwhelming complexity of commercial lending, it is critical for each small business owner to have a complete understanding of all commercial finance details.

Our first six-word observation in this article is “business financing will require aggressive action”. Extreme measures such as firing their banker and finding alternative commercial funding sources for small business loans will need to be anticipated by small business owners in many cases. Nobody should expect that bankers will publicly announce that they are in any kind of financial trouble after recalling that they have not been sufficiently candid about commercial lending problems in the past. Banks continue to maintain that they are lending normally to small businesses despite contrary evidence that they are not. Commercial borrowers will need a healthy amount of skepticism when dealing with any commercial lender.

Our second observation in this report is “most commercial property values have dropped”. There are very few exceptions to this disturbing trend. The biggest business financing impact will probably be produced by commercial refinancing situations. Many banks are aggressively recalling (rescinding or revoking) existing commercial real estate loans and this literally forces a borrower to seek business refinancing from another lender even if a business owner has no interest in refinancing their commercial mortgage. Business refinancing will be a challenge for most small businesses in light of widely decreasing commercial real estate values.

It is important for small businesses to realize that they are not alone when they hear their bank say no to routine requests for commercial financing, and our third example of six words describing business financing options is “bank commercial loans have limited availability”. For any borrower who might doubt this observation or be unaware of this harsh reality, candid conversations with other business borrowers will help to remove any doubts. The failure of banks to provide an adequate level of small business loans on a widespread basis is the primary point that business owners should examine more closely.

Our last six-word description of commercial financing is “business lines of credit are disappearing”. Even the most successful businesses need a reliable source of working capital financing, so this situation is especially serious if a business cannot replace bank financing when it suddenly disappears. On a widespread basis banks are reducing and eliminating business credit lines with almost no advance notice, and this must be realized even if a business still has an adequate line of credit.