When struggling to obtain finance, business owners can be tempted to rush into unwise borrowing relationships – just to get the cash flow they need. It’s only when the situation dies down that they realise how punitive the conditions of their loan are. Perhaps they will have to make repayments for the next five or six years, restricting expansion plans, or maybe the interest rates are set so high that even short-term borrowing costs more than is comfortable. In some cases, the loan just pushes cash flow issues further along the pipeline.
There’s a Cash Flow Revolution Happening
The heart of the problem for many is the false idea that there is only one secure way of of getting hold of finance: the high street bank. But from invoice factoring and peer-to-peer lending to crowdfunding there has been an explosion of novel ways to access funds and improve cash flow. One of the most flexible solutions for cash-strapped business owners is the merchant cash advance (MCA), a short-term, unsecured cash flow solution usually recouped from monthly takings.
Warning: Not all MCA Providers are the Same!
When it comes to MCA funding, it is still important to look at the terms of the arrangement very carefully. Just because a finance provider is ‘alternative,’ it doesn’t follow that they are interested in providing the best deal for borrowers. Before rushing into securing finance, business owners should look closely at the following:
- The Fee. Cash advances do not normally charge interest. Instead, a fee is negotiated for the advance and this fee can vary considerably between lenders.
- The Repayment Schedule. MCAs are normally recouped as a percentage of each month’s credit and debit card sales although fixed repayments are possible with some (including Speed Fund LLC).
- The Security. Most MCA funding is unsecured, but borrowers should check carefully to avoid putting their assets at risk.
Finally; a Note on Eligibility
There are many providers willing to provide finance. Business owners may not meet the eligibility requirements of one, but they should not get discouraged. For example, whereas most MCA lenders insist on a monthly turnover of at least $10,000, Speed Fund LLC will accept applications from small businesses turning over just $6,000 in gross sales. Some companies will also insist that you have a credit card terminal through which repayments can be set up. Again, Speed Fund LLC will accept applications from businesses without such technology.
Overall, the message to small business owners is this: if you need cash flow, there is more flexibility and fairness out there than ever before.