Most small business owners cannot access financing from their bank or through Small Business Administration programs because of various requirements which include high credit score requirements and voluminous financial reporting requirements. So, many small business owners turn to alternative lenders who offer less rigorously attained products such as Merchant Cash Advances to finance their business needs. However, many small business owners who take on such financing know little about MCAs. In fact, we also find that many MCA brokers do not understand much about what they are selling. The purpose of this series of articles is share vital information about what Merchant Cash Advances are, what they are not, and important information for small business owners to consider when either working with or considering securing. By Thomas Tramaglini, Managing Director - BRP Onesta info@BRPOnesta.com www.backofficedepot.com www.thomastramaglini.com About Thomas Tramaglini The Stats Don’t Lie – Small Business Owners Need and Want Funding According to the US Small Business Association (SBA), in 2020 there were over 32 million businesses in the United States and the US Census Bureau reported that nearly 10 million new businesses were started during the years 2020 and 2021. As small businesses begin to grow, small businesses usually need some sort of financing so they can expand their operations. For instance, a restaurant owner may need to add new equipment because that equipment might quadruple their revenue. An HR Firm may need to hire more staff because they are attempting to insert themselves in a local market that is targeted. Some small businesses also take on short term financing to close gaps in revenue or to realize better cash flow. Regardless of use, small business owners need and want business financing. In 2020, the SBA also reported that over 50% of all small businesses have borrowed money in the past 5 years. However, with it being so hard to secure low-cost financing, what do small business owners do to attain the funds necessary to run and grow their businesses? The Merchant Cash Advance The need for small businesses to attain funding combined with difficulty of small businesses to attain funding from banks has served as the catalyst to the alternative lending industry growing into a multi-billion-dollar industry. That said, one of the most common avenues for small business owners is the Merchant Cash Advance. What is a Merchant Cash Advance (MCA)? An MCA is not a loan but an advance of a business’ future receivables. Lenders gauge how much to advance a small business owner in several ways, including previous credit card sales and revenue going into their business bank account. Variables such as industry, number of deposits, daily balances among others are used by the lender to hedge risk. Regardless, MCA lenders offer to advance a portion of a small business’ future sales as well as an agreement with the business owner on the percentage of future sales which are being sold to the lender. A Merchant Cash Advance (MCA) is one of the easiest funding options for small business owners because MCAs are unsecured, do not require strong credit, usually do not require collateral, and require little documentation (if any). The average MCA file can be funded within a day and usually requires several months of business bank statements. Interest and Terms MCAs do not carry interest. Advances carry factor rates, which are also called buy rates that are simply an agreement of how much of a small business’ future sales will be paid to the lender. Some advances may also collect repayment terms by taking a portion of business’ credit card receipts each day as well until their agreed sale of future receivables is completed. MCA payback frequency varies depending on the risk and bank account statistics. For instance, if a borrower wants to have a monthly or weekly payment the lender gauges that opportunity off the average daily balance of the business in the business bank account. When daily balances are variable or lower MCA lenders may require a daily payment. Probably the most negative part of an MCA is cost of money. MCAs can be expensive. That is, MCAs can be as high as +50% in payback. Also, most advances carry origination fees for the work by the lender, which can be as high as 10% of the loan. MCA cost of money is like how credit card cash advances operate and, in some cases, better. Advantages of MCAs Merchant cash advances have several advantages for small business owners, and some can include: Fast funding - Some MCA companies can fund small businesses in 90 minutes. Most MCAs do not have UCC liens. MCAs are not usually reported on personal credit. Funds are unsecured. Payment frequency can be flexible at times. Most MCAs do not carry a personal guarantee. Easily refinance options which can cut costs. No early payback penalties. Small business owners can build a relationship with the lender ultimately securing better programing. Few required documents (including taxes) for funding. Is an MCA right for your business? This article focused on the need and application of the Merchant Cash Advance for small business owners. In part, MCAs can be a beneficial piece to a small business and its growth. However, MCAs should be taken with caution, as business owners should know the rules, payback terms, as well as the associated profit margins. If you have questions, you can always contact our team here. You can always explore our discounted options for Merchant Cash Advances which we usually find financing 10%-20% lower than our competitors. Dr. Thomas Tramaglini is the Managing Director for BRP Onesta, a company that supports small businesses. By offering a host of important and affordable services that small business owners tend to not have time to do themselves, the team at BRP Onesta can help small businesses grow infinitely. Although located in on the famous Jersey shore, BRP Onesta serves clients in all 50 states, Puerto Rico, Mexico and Canada.
Yearly Archives: 2022
This article highlights how easy it really is to find those who may have committed COVID-19 Relief fraud and several techniques that the government can and probably is using to find those who committed fraud from the pandemic funding programs.
Why did my deal get declined? This is a common question that we get from our clients. While the economy seems to be tightening, there are common ways that borrowers can understand what lenders are looking for and avoid being declined for small business financing. In this article we review thousands of declined lending applications and narrowed 23 specific reasons for why small business owners get declined for small business financing.
On July 11, 2022, for the first time ever the exchange rate between the US dollar and the EURO reached parity. With the volatility of a recession and uncertainty looming across the global market, small business lenders and community banks will certainly think twice in providing loans. What is abundantly clear is that small business owners will continue to rely on financing to sustain and grow their businesses. This article explores several recession-proof ways small businesses can take on business financing without the worries of the recession affecting their options.
Over the last year, we have written extensively at the breadth of fraud associated with the Federal Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL) Programs during the COVID-19 Pandemic. In recent weeks, the US Small Business Administration Office of the Inspector General (OIG) released a scathing report of the performance of the US SBA during the COVID-19 Pandemic and its attention to fraud during the PPP program. Not only are some small business owners and some lenders to blame for fraud, so is the US Small Business Administration. Clearly, they failed to adequately do their part in preventing fraud, ultimately leading to what some have called the biggest fraud in the history of the United States.
Whether you’re a young, aspiring entrepreneur or a successful leader in academia, you depend on your customers and clients to pay on time, every time, and you need straightforward policies and processes to make that happen. If your customers are late with their payments, your business has to handle the situation with kid gloves because the last thing you want to do is lose a customer. Here are some tips for how to tackle late payments without offending your clients.
A recent survey demonstrated that nearly 2 in 3 small business owners sought loans for their businesses in 2021. However, small business owners should have advance notice of what lenders are looking for from potential borrowers in 2022. This article gets at some of the characteristics lenders will ask borrowers who wish to secure financing for their businesses.
Without a doubt, small business owners want access to capital so they can run and grow their businesses. However, many small business owners who we speak with do not know where to start. So, to help small business owners access these free programs we have built a list of small business grants on our portal which we keep current weekly.