With things just getting started, and cash flow being fairly erratic, it’s easy to get behind on debt payments or bill payments, and see your already-thin credit file marred with issues, resulting in bad credit for your business.
Yet, bad credit business financing options do exist, and may be exactly what you need to get your business back on track, improve your credit score for the long-term, and set yourself up for future success.
One of the best options for bad credit business financing is a merchant cash advance, sometimes called an MCA loan.
Bad Credit Limits Business Financing Options
Merchant cash advances or MCA loans are by no means the only kind of bad credit business financing available, but they are often a “last resort” for businesses that may be struggling.
This is because merchant cash advances generally have some of the lowest minimum credit score, revenue, and time-in-business requirements of any of the various small business funding options commonly available on the market today.
Other options tend to have much higher bars to clear for applicants, as they are higher risk for the lender. But MCA loans are a different product, especially inasmuch as they are usually only offered by private lenders.
That’s a big bonus for struggling businesses, as we’ll explain in a moment. Credit scores or a limited credit history often are a key limiter to obtaining working capital or project funding for small businesses.
Banks have notoriously high credit requirements for almost all kinds of the small business funding that they may offer.
On top of that, they often only provide secured credit and loan products – those backed by borrower collateral – which may simply be too risky or out of reach for many small businesses, especially in difficult times.
That’s if the bank offers small business funding at all, since it is seen as high risk by many banks and therefore limited in availability.
Private, non-bank lenders fill some of this gap in the market, and provide new hope to businesses seeking bad credit business financing, including merchant cash advances.
These specialized firms don’t do the investing and depositor banking common at banks, and so don’t have the same kind of risk management policies.
They can individually set their lending criteria, and therefore offer many small business funding options with much lower minimum requirements than at banks.
As a result, many small business owners are able to qualify for small business loans, merchant cash advances, and other funding options, even with bad or limited credit.
How a Merchant Cash Advance Works
So, what exactly is a merchant cash advance, and how does it work? Put simply, a merchant cash advance is similar to a loan, in that it provides borrowers with a lump sum of cash up-front, at the time the paperwork is signed.
This cash then must be repaid over time, with interest. However, that is where a traditional small business loan and a merchant cash advance start to diverge from one another, and the unique qualities of the merchant cash advance start to shine.
Traditional small business loans are provided for a set period of time, known as the loan term. This can range from a few months in the case of a short-term small business loan, to a period of several years for most ordinary small business loans.
In that term, repayments are made on a regular basis, in equal amounts, based on calendar dates. For example, a 3 year small business loan will typically have 36 equal payments, once per month, in which the borrower repays the principal and interest.
By contrast, merchant cash advances have a repayment mechanism and schedule that is not tied to a calendar date. There is no loan term, either, at least not in the formal sense.
With a merchant cash advance, you’re effectively pre-selling your future debit and credit card sales, at a discount. That discount is comparable to an interest rate – in this case it’s called a factor rate.
Repayment is dynamic and based on your credit and debit card sales. Once an MCA loan is setup and integrated with your payment processing, repayment is automatic from each sale.
There’s no stress about meeting a repayment due date when sales are slow, as there is with a traditional small business loan. With a merchant cash advance, when sales are slow, repayment is slow.
When sales are great, repayment is much faster. This reduces the risk to the borrower and the lender, and makes repayment of an MCA loan far less stressful.
MCA Loans from BizFly Funding
Small business owners seeking small business funding and interested in a merchant cash advance (or other kinds of funding) should know that they are easier to obtain from private lenders as compared to banks.
That’s especially true when you are seeking a merchant cash advance with bad credit.
One of the leading private lenders in the US today, BizFly Funding, offers a full range of loan and credit products, including MCA loans, small business loans, short-term loans, lines of credit, and more.
They offer very reasonable minimum qualification requirements, making it easy for even businesses with bad credit to get the cash they need.
Add to that a quick application and approval process, and fast funding, with many customers receiving their funding within 1 business day following execution of the loan agreement.
Perhaps most importantly, BizFly Funding is affordable, reliable, and provides outstanding service.
Trust your next merchant cash advance to a true expert in small business funding, that only services the needs of the small business community – BizFly Funding! To find out more or to start the application process online, visit BizFly Funding at https://bizflyfunding.com.
Frequently Asked Questions about Merchant Cash Advances for Small Businesses
A merchant cash advance, sometimes called an MCA loan, is a type of merchant financing available to businesses. Though the name may seem similar to a regular cash advance loan, that “merchant” qualifier in the name is important.
In general, cash advance loans are meant for individuals, in their personal capacity, and not for businesses. They are more commonly called payday loans or short-term loans.
While they certainly can be used as a valuable financial tool for individual borrowers, they’re not the kind of small business funding that we’re talking about in this guide.
So, simply put, no, they are not at all the same thing.
Relying on a business or personal credit card for a cash advance is unwise, and imposes a lot of limitations.
First of all, the amount you can obtain via a credit card cash advance is limited to your credit line limit.
Second, there are often significant fees and premiums that you need to pay in order to access cash from a credit card.
Third, the interest rates are considerably higher than many of the kinds of small business funding you can access from a reputable lender.
On the other hand, merchant cash advances are available in sizable amounts for qualified small businesses, often well more than a corporate card credit limit.
Interest (in the form of a discount, or factor rate on future credit and debit card sales) may be comparable or more reasonable than a credit card cash advance, and there are no exorbitant service fees or surcharges.
Perhaps most crucially, an MCA loan is superior to a credit card cash advance because repayment is dynamic and tied to sales revenue, not a calendar date.
It won’t create a debt hole that’s difficult to impossible to climb out of in the same way as excessive credit card borrowing can.
A merchant cash advance does not directly hurt or help your credit score.
Unlike other loans, and despite it being called an MCA loan colloquially, it’s not a true loan product.
Rather, it’s a transactional sale – selling future credit and debit card sales at a discount in exchange for an up-front sum of cash.
Therefore, it doesn’t get reported or treated in the same way as a loan or line of credit.
If you go bankrupt and fail to repay the merchant cash advance in full from future sales, then the account may end up in collections, which can definitely hurt your credit score.
However, since the MCA loan is open-ended in terms of calendar dates, it’s one of the least-likely small business financing options that can trip you up with a missed or defaulted payment.
The requirements for a merchant cash advance will vary based on the lender with whom you are seeking it.
In most cases, merchant cash advances offered by private lenders do not require collateral – they are unsecured, meaning the lender accepts the risk without “securing” the debt via collateral.
Some minority of private lenders, and more often banks, may offer MCA loans that are secured, and require collateral in order to obtain.
This is more uncommon than it is common, as banks tend not to offer merchant cash advances at all, and shy away from small business funding in general due to risk.
If concerns over collateral are a big deal for your small business, then just be sure to seek out a lender offering unsecured merchant cash advances, and you’ll be all set.
As with most financing products, the best way to ensure the lowest rates on an MCA loan is to work your hardest at maximizing the financial health of your business.
This includes generating as much monthly revenue as possible; working to build a high credit score and maintain a good credit history; developing credit and trade references; and being a responsible user of credit and loans.
The good news is that merchant cash advance services are one of the easiest forms of small business funding for which you can qualify – even with a relatively low credit score.
This is provided, of course, that you do a significant portion of your sales via credit or debit card, making an MCA loan suitable for your business.