Merchant Cash Advance Blog

Finding the Best Lenders for Small Business Loans

   Tuesday, 02 January 2018 11:31 PBC Blog

Finding the Best Lenders for Small Business Loans

Getting the best lenders for small business loans is one of the numerous challenges facing small business owners the world over. It is well known that the issue of adequate financing remains one of the leading causes of business failure in the country—especially the small ones. So it is not surprising the amount of effort that business owners have to put into securing commercial loans or other forms of business credit since the demand is exceedingly high and the lenders mostly the traditional ones remain skeptical of small businesses. For instance, small businesses have often had to spend a great deal of time in trying to boost their credit scores as those are a major requirement for obtaining small loans. Lenders tend to perceive businesses with low credit as riskier (after all loans are in general risky), so boosting the credit score of a business is one way of saving time and avoiding potential frustration in the long run. In addition, getting the best lenders for small business loans should actually being with a solid business plan on the part of the business as no lender however small would be willing to invest in a business that has no clear vision. The business plan is expected to show the lender whoever it might be what the money is to be spent one, what is projected for the future of the business and how the financing to be received fits into that plan.

Things to look out for in choosing the best lenders for small business loans

Loans required by small businesses are usually relatively small, however, as should be expected lenders have different capabilities when it comes to how much they can loan to small businesses. It is therefore expedient for small business owners to opt for lenders that are likely to respond positively to the requested amounts. For instance, online lenders do not typically offer seven digit loans as opposed to commercial banks which can easily dole out such amounts. However, nontraditional best lenders for small business loans can offer six-digit loans which are actually what the vast majority of small businesses would require. It is important for a business to deal with lenders who make their eligibility requirements quite clear and not leave room for ambiguity since it would be highly frustrating for a business to begin a loan application only to find out that there are certain requirements that it does not meet. That said the issue of annual percentage rate should also play a major role in helping small businesses decide on what credit options to pursue. In this regard, it is usually commercial banks that offer loans with lowest APRs; while cash flow loans with quick turnarounds have higher rates. The best lenders for small loans should also be lenders that offer terms that are quite very flexible in addition to having a short processing period since most small business loan needs arise from emergency situations which need to be salvaged very quickly.


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Looking at the option of commercial bank loans

Commercial banks no doubt rank among the best lenders for small business loans for quite a number of reasons. The most significant thing about commercial bank loans and indeed loans from a traditional financial institution is that the interest rate is quite low in comparison with those of loans from other sources. Moreover, commercial bank loans can be repaid over long periods of time with some loans having periods of more than 20 years. This is one thing that nontraditional lenders cannot offer for reasons which will soon become apparent. And, of course, it is much easier for small businesses to repay loans from commercial banks since the monthly payments which are in any case small might not adversely affect cash flow. In addition, there are some incentives which come with commercial bank loans. For while there are strict penalties for late payments, there are benefits attached to early payments in the form of smaller interest rates. And most of the best lenders for small businesses that happen to be commercial banks often partner with relevant governmental agencies. For instance, the small business administration sometimes partners with commercial banks to provide loans which are backed—in which the SBA pledges to repay the loan or a portion of it if when the business is unable to.

Why Bank Loans are Not Exactly Suited for Small Businesses in Dire Need

In spite of the seemingly endless benefits that come from commercial bank loans, there are discouraging aspects. There is nothing actually more disconcerting about loans than the fact that it is extremely difficult for small business to obtain. While it is true that as many as 31 percents of small business as research suggests are reliant on commercial bank loans, it is even truer that the number of businesses turning over to other non-bank sources is on the increase—rapid. In short, it has been stated that much of the loan applications from small business to banks—around 50 percent—get rejected, that is after several weeks or months of waiting for the request to be evaluated. The reason why loans from one of the best lenders for small business loans might seem out of reach of small businesses is not farfetched from the inability of the small business to meet up with laid down requirements. Of all requirements for obtaining commercial bank loans, none stands in the way of small businesses as much as the issue of collateral. Banks require collaterals to act as a form of security against the loans and in some cases, they even obtain personal guarantees from the owners of the business.


Not surprisingly small businesses are almost not always able to provide such collateral requirements which automatically make them not eligible for loans. The issue of credit score also poses a major challenge. Banks typically favor businesses with good credit scores as this serves to underscore their creditworthiness, while being wary of those with poor scores—which are, sadly, in the majority. Above all, loans from banks cannot be relied on in emergency situations which small businesses are often found in. It takes a long time to process bank loans in general. All these factors readily cast doubt on whether commercial banks can actually be regarded as one of the best lenders for small business loans. However, it is not all gloom for small business owners who are gradually embracing alternative lending sources such as merchant cash advance. It is this particular source of alternative business finance that shall be examined next. In evaluating merchant cash advance, it is our aim to compare and contrast it with commercial bank loans, sitting areas in which MCA funding beats loans from traditional financial intuitions.


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Brief Description of Merchant Cash Advance

In sharp contrast to what might be the general belief a merchant cash advance is not technically a loan and does function as one either. A merchant cash advance is a transaction in which a business agrees to sell its future credit receivables to a merchant cash advance provider in exchange for a lump sum of cash. Simply, put the business offers the merchant cash advance provider a fixed portion of its daily credit card sales until the cash advance is paid back. Indeed, merchant cash advance is considered as one of the best lenders for small business loans especially among alternative finance providers for reasons which shall be explained shortly. The process of obtaining a merchant cash advance starts when the business owner signs the merchant cash advance agreement. In this agreement, such things as the factor rate, the total payback amount, and the withholding percentage or amount are all stipulated. The factor rate is some figure around 1.2 to 1.5 which is used to multiply the advance to arrive at the total amount the merchant is to repay. While the withholding percentage is the proportion of the daily credit sales which is to be remitted to the lender in order to gradually offset the advance. The process of remitting a portion of sales on daily basis continues until the loan is repaid.

How does Merchant Cash Advance beat commercial bank loans

Merchant cash advance vendors clearly are among the best lenders for small business loans since it does not involve collateral which is the biggest obstacle to obtaining bank loans. The absence of collateral requirement not only means that businesses are more able to obtain financial assistance, but that they do so without risking anything in the process. It is the cash providers that stand to lose everything if the business fails. In addition, the chances of a merchant being accepted for a cash advance once the small requirements have been met are almost 100 percent as opposed to what obtains in commercial bank loans where the likelihood is less than 40 percent.


Furthermore, it takes quite a short period of time plus minimal documentation before an MCA loan can be processed and cash issued to the business. For instance, while it could take months for a bank loan to be processed, obtaining a merchant cash advance is often a matter that can be sorted in a few business days. Moreover, since interests are not charged on a merchant cash advance, the question of accumulating interests does not arise, and businesses tend to cope better with this arrangement. Above all, merchant cash advances are structured in a such a way that is repaid within a short period of time which is often less than 18 months, ensuring that businesses are not indebted for long periods of time. Finally, it must be said that more and more businesses are beginning to see why merchant cash advance providers are likely the best lenders for small business loans. And since that is the case, it would be worthwhile for any small business to give merchant cash advance a try.


We provide two highly accessible financing programs that can get your business the working capital it needs in days instead of months.

For a small business, obtaining a traditional loan today is a complex and difficult process. That’s where Premier Business Capital comes in. 

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