Merchant Store Loan Alternative : Alternatives to Traditional Business Loans
If you have applied for and been turned down for a traditional bank small business loan, you are not alone. There was a time when getting a small business loan was much easier than it is now. Today, it is next to impossible to get bank loans without a near perfect credit history.
What's the Alternative?
The merchant store loan alternative offers small businesses a way to get cash for capital now. The interest rate is much higher than the bank, but the terms to pay back is much more flexible than a bank.
How Does a merchant cash advance loan work?
Rather than looking strictly at your credit and FICO score like a bank does, a cash advance looks at how much the business makes. Typically, you need to have at least several past months of having a minimum of $5000 in credit card transactions.
Repayment of a Merchant Cash Advance
A bank loan requires you to pay a specific amount each month, but this is not how a cash advance loan works. Instead, the loan is paid back through a percentage of each future debit and credit card payment your customers make. Some months you'll pay less and some more depending on the sale volume for the month with Merchant Store Loan Alternative.
The Flexibility is Attractive
While the merchant cash loan has a higher interest rate, it is the flexibility of the repayment that makes it easier for most to manage. In addition, loan funds are typically made available to merchants much faster than a bank loan would be.
The merchant advance is becoming very popular as more businesses seek ways of getting capital to continue to grow as a business. The banks may never get back to lending small business loans to very many businesses, but there are alternatives available that has helped many companies.
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What is the Best Merchant Store Loan Alternative?
Every small business owner knows how difficult it is to obtain financing in the current economic climate. If you are in this position, you may have tried several banks without success, and be uncertain how to proceed with merchant store loan alternative. However, there are other potential sources of funding you can explore, depending on the type of business you run.
If your business is mainly concerned with supplying other businesses, who may not always pay on time, thus impeding your cash flow, one possible source of funding is asset-based lending, or factoring. The factoring company takes on your receivables or invoices, paying you a percentage up front and taking responsibility for collecting the payments. Another possibility is to approach the specialized companies which offer non-bank loans to small businesses. The repayments are not fixed amounts, but are based on a percentage of your monthly revenue, and in addition the company takes a small stake in your business.
Probably the best known merchant store loan alternative is the merchant cash advance. You can apply for one of these if you have a business merchant account, and the funds are provided as advances on future credit card sales. No collateral is required, and it does not show up on your credit report.
These advances can work out very expensive, so should not be used without careful thought. However, many businesses find the cost is outweighed by the benefits, the greatest one being that you only make repayments when you have money coming in. If you have a lean month, no payment is taken. In addition, if you go out of business before repaying the advance, the lender stands the loss.
During the current recession, the merchant cash advance has become the most popular avenue of funding for small businesses. The important thing is to weigh up the cost against the alternatives, and use the advances only for short-term funding. If used correctly, they can be an excellent way of overcoming a cash flow crisis, and keeping your business going until you can qualify for cheaper financing.