The dream of every business owner is to see the business continue to expand. For a business to expand there is always the need for massive investment from its owners. But the funds required for such investments might not always be available. In fact lack of capital for pursuing key business objectives has been identified as one of the leading causes of stagnation in business. The issue of funding, if not addressed, could even result in the crumbling of the business. Indeed, there is plenty of evidence for this. It has been found that about 1 in 3 new business setups do not survive the first 5 years operations for reasons bordering on finance. Merchant cash capital has, therefore, become a must-have for small businesses especially at the present time.

The reason why this is the case at the moment is that there is a general reluctance on the part of commercial banks to issue credits to small businesses in particular. The reason for this disturbing state of affairs remains entirely unclear. However, there are suggestions that it has much to do with the recent economic recession in the country. This idea, although generally accepted, might not be able to explain why bank lending to small business is down by 20 percent while lending to big firms is up 7 or so percent. Regardless of what the actual reason might be, what is clear to all is that merchant cash capital has been of great help to small business owners who have been denied access to working capital by traditional lending institutions.

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The reason why small businesses fail to obtain working capital from commercial banks

In order to truly understand why business owners are shifting grounds in favor of merchant cash capital, it is useful to examine what the major obstacles are to securing bank loans and how alternative funding sources such as merchant cash advance become very attractive to business owners in the light of those obstacles. First, the main reason why businesses sought all manner of loans from commercial banks was because of the relatively low-interest rates they charged. It can even be said that at the moment bank loans are the cheapest options out there. But of what use is that if the loans cannot be easily accessed? Also, of what use is it if a business that is in urgent need of cash to tackle core business challenges has to wait several months before getting a loan? Looking at these questions one immediately recognizes the problem with bank loans. And, of course, with merchant cash capital those problems are totally eliminated.

One other thing that scares businesses away from commercial banks is the issue of collateral. The issue is of such a magnitude that it has lead bankers and businessmen alike to suggest that banks only give out loans to those who do not need it. Of course, that is quite an exaggeration, but the fact remains that small businesses find it extremely difficult to come up with collateral neither are they able to offer personal guarantees. Because the issues of collateral, good credit score and what have you do not come up when a business is seeking merchant cash capital, small business owners have subsequently shifted to alternative sources like merchant cash advance.

How exactly will the capital obtained through merchant cash advance be utilized by the business?

There is hardly any limit to what a business can choose to do with a merchant cash advance. The fact is that unlike business loans where the banks spend a great deal of time scrutinizing what the loan is to be used for, merchant lenders do not pay much attention to what the merchant cash capital is used for provided it is satisfied that the business will be able to repay the advance. So a business could use the funds received to open a new location—like a restaurant that is seeking expand its customer base by opening new branches. No one can doubt how many openings a new outlet can help in the expansion of a business no matter its nature. Some businesses might also choose to grow by increasing the volume of goods that they produce. In order for this increase to happen over a short period of time, it might become necessary for the firm to purchase new pieces of equipment which can be done with merchant cash capital as well.

Business growth can also come if a business to maintain cash flow.  It is not surprising that some business owners simply seek out loans simply for the sake of maintaining their cash flow. It is very important for cash flow to be maintained in a business because that would help the business a great deal. For one thing, once the cash flow of a business is strong it is going to have always working capital. Merchant cash capital in itself can be very important during the working cycle of products. If a business does not have funds available as a result of it being tied to products whose manufacture is still in progress, it might not be able to keep up with business activities. So being able to obtain working capital as soon as it needs to is something that should be important to every business owner; thankfully merchant cash advance makes this possible.

Taking a closer look at Merchant Cash Advance

So far, we have been looking at various ways in which merchant cash capital can be used to further business growth and expansion. It is also important that we examine what merchant cash advance really is—after all, it is the source of merchant capital. The first thing someone needs to know about merchant cash advance is that is not a loan in the traditional sense of the word. Because of this, there is no interest charged on a merchant cash advance. Instead, a fixed fee is charged by the merchant cash advance for the service. In reality, merchant cash advance is structured as s commercial transaction between two businesses in which the merchant cash advance provider buys a portion of the future credit sales of the business. A business that opts for merchant cash capital generally sells its future receivables at a discounted price something which leads to the factoring in the first place. Factoring involves multiplying the actual amount that is advanced to the business by a certain amount that is often less than 1.5 to give what is known as the total payable amount.

How is the payment made to the merchant cash provider?

The process of repaying the merchant cash advance is quite simple. First, there is an agreed portion of the daily credit sales of the business which will be channeled to the repayment of the loan. The payment is something that is automatic and can sometimes be facilitated by the credit card processor. Unlike what obtains in bank loans where a fixed an amount has to be repaid each month regardless of whether the business is doing well or not, there is some degree of flexibility in merchant cash advance. For instance, a business has two main options in paying back the merchant cash capital advance. It could choose for a fixed percentage, say 20 percent, of its daily credit sales to be remitted to the merchant cash provider, or it could decide that it wants to pay a fixed amount each day. In choosing the fixed percentage method, the business gets to pay more when sales are high and it gets to pay less when sales are low. The immediate benefit of this method is that it does not produce much strain on the business cash flow; however, payment could linger longer than expected when this method is used. On the other hand, businesses choosing to pay a fixed sum each month might be looking to pay off the advance in the shortest possible time, even though there is no reward for doing so in the case of merchant cash capital. Whichever method that is chosen, payment is made until the advance has been fully repaid.

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Some Benefits of Merchant Cash Advance

One of the biggest reasons why small businesses are looking to merchant cash advance for business funding is because of the ease and speed with which the loans can be obtained. It is well known that the approval rate for commercial bank lows is very slim. It has been revealed that more than 50 percent of loan applications to commercial banks in rejection. In contrast, the approval rate for merchant cash capital is more than 90 percent, ensuring that almost every business that is eligible for an advance gets one. Talking about speed, merchant cash advance can be delivered in within a few business days because the documentation required is minimal. This is something much better than a commercial bank loan which can take months to obtain. The benefits that come from merchant cash advance are certainly beyond those we have discussed. And if there is anything one must keep in mind it is the fact that there is no better option than merchant cash advance when a business funding is needed especially by a business that cannot meet up with the requirements for commercial bank loans.

Due to its effectiveness, ease in acquisition, and ease in repayment, merchant cash advances have become quite popular amongst small business owners seeking to expand their business. Consider a merchant cash advance today!