Payment processors like merchant cash advances can be very beneficial for people in small businesses. When businesses need urgent money and cannot wait for the sanctioning of traditional loans, merchant cash advances that prepays entrepreneurs for credit card receipts becomes a boon. Here we analyze the way these cash advances work and its potential benefits.
This advance is actually not a loan, since you are not really borrowing. If a business that you run takes credit cards, a factoring company or merchant cash advance company offers you money so that you have the permission to take credit card receipts in future. As far as traditional loans are concerned they take interest, thus collecting more than you borrowed. Merchant financing companies make money by offering lesser amount than they will take from your sales of credit cards. Though the interest rate is higher in the long run, small businesses prefer merchant payment processors as they are easy to get.
Another factor that attracts small businesses to these type of financing is that they do not look into your past credit history, unlike traditional loans. It is very difficult to borrow from traditional banks if you have a negative credit history or limited credit history. If you have started a new business and have not gone for any financing or do not have credit history, then you will find it very difficult to get a loan from traditional finance companies or banks. However, merchant cash advance companies offer money for businesses that have just two months of credit card transactions.
These firms need only your credit card as security, unlike traditional lenders who wants to know the repaying capacity, reputation, condition of loan, money invested in the business and the collateral the consumer has in hand. Since minimum security is needed for these loans, small businesses find it a blessing.
Risk associated with merchant cash advances is lower compared to traditional lending firms. In the latter, the lender has the right to take everything you kept as security in case you do not repay the loan. The lender can even undertake legal steps to get back the money from the customer, making your credit rating go down significantly. In merchant cash advances the risk is for the company.
These type of financing companies are highly on the rise. Small businesses depend on them largely to improve their businesses. The room for development for funding companies is plenty. The companies mainly target service firms, restaurants, retail firms etc as they enjoy more credit card sales, yet are not eligible for traditional loans due to bad credit or lack of collateral.
Visit to Smallbusinesscapital.ca for your business which help small businesses succeed with their merchant financing.