Merchant Cash Advance Blog

Quick Loans from a Small Business Finance Company

   Thursday, 11 January 2018 11:44 PBC Blog

Quick Loans from a Small Business Finance Company

Of the several challenges facing small businesses the issue of cash flow stands among the greatest. In order for a small business to survive, it must maintain a realistic working capital which helps it to balance the regular trading cycle. When a hitherto profitable business is unable to meet its obligations as a result of a reduction of working capital, it might fold up. Apart from obtaining working capital, a business might require funding in order to pursue other business objectives such as buying of new equipment, purchasing raw materials, and even meeting up with payroll obligations. Up until now, commercial banks have been the greatest source of business finance for small businesses; but nowadays alternative sources of funding have become the in thing for small business owners for reasons that shall become clear. The idea of getting finance from a small business finance company is all about seeking business loans from lending firms that have a special focus on small businesses. These firms all seek to make business funds easily accessible to businesses which have been denied access to loans from traditional sources of financing.

Reasons why small businesses are unable to access bank loans

There are quite a number of reasons why small business firms are unable to access loans from commercial banks. The most significant of these has to with governmental regulations which prohibit banks from lending to firms which are still at the budding stages. The logic behind is that such ventures are way too risky and banks would do well not to gamble with the finance which actually belongs to a citizen who is the depositor. Because of this reason, banks, unlike a small business finance company, do not lend money to startup companies.They are also very skeptical businesses in general, preferring to offer loans large corporations, which are almost certain to pay back. The recent economic recession experienced in the country did not also help matters. During the economic recession small businesses were the worst hit, and even though the country has gradually pulled out of the recession, banks have not regained their confidence in small businesses. While the total amount of bank lending to small businesses decreased by 20 %, there was a near 10 % increase in bank lending to small businesses. In short, it has come to the point where as much as 50 % of loan applications made by small firms to commercial banks end up in rejection. One survey even revealed that as many as 40 % of small business owners did not bother to approach banks for business funding; instead, they opted for a small business finance company, especially alternative lenders.

Read More:Merchant Cash Advance and the Quest for Alternative Business Finance

Poor credit or no credit history

Furthermore, bad or even no credit has also been identified among the reasons why small businesses get turned down for loans. A credit score is actually a measure of the creditworthiness of a business. The credit score tells how a prospective borrower behaved in previous loans or credit. And by behavior, we mean how committed the borrower is to meeting payment deadlines. In order to obtain a business loan firms are often required to provide both personal and business credit scores. Of course, each individual and business has different credit scores depending on the credit bureau that is reporting to the small business finance company. Although there are three main credit bureaus likely providing different scores it is not relevant in this place to state which lenders look at which credit score. What is relevant though is that there are certain factors which can make the credit score of a business low, one a business has to be aware of. Some of these factors include bankruptcy, late and missed payments, as well as issues with credit cards or even vendors. In some cases, a business is quite new and as such has no sufficient credit history to enable lenders to make informed decisions. What is also relevant is that a small business finance company, especially those in the alternative finance industry would not pay much attention to the issue of credit score, making them the top choice for businesses that have very low scores which could not be used to obtain bank loans.

No collateral or personal guarantee

As every small business owner who has tried in vain to obtain funding from a commercial bank can attest to, the problems of collateral are one that businesses of whatever nature often find insurmountable. And banks in a bid to guarantee the loans issued to a business will always insist on the business providing collateral. Collaterals are physical property which guarantees a loan if it is not repaid, meaning that a bank, for example, could possess the said property if the business is unable to repay the loan at the specified time. But small businesses usually do not have high-value pieces of equipment or real estate which could be used as collateral in any loan agreement. Even when a personal guarantee is required, small business owners are often reluctant to offer such things as homes, personal cars, further complicating issues and necessitating their visiting a small business finance company such as a merchant cash advance provider or even an online lender as the case may be. The situation, however, for small businesses, is not one that cannot be remedied. This is because alternative lenders such as merchant cash advance providers are known to provide unsecured loans in which the borrower does not bear any risk, and in which the lender stands to lose the entirety of his investment without any means of recourse if the business falls into difficult circumstances and fail.

The problem of cash flow and loan amount

The last major issue that would make a business to turn away from obtaining business funding from a commercial bank, but to rather opt for a small business finance company such as one that offers merchant cash advance has to do with cash flow. This is because banks would naturally want to determine whether or not a business has enough revenue to enable it catering for monthly payments. But the vast majority of small businesses struggle to have some cash in the bank aster they must have met basic obligations such as buying raw materials, paying workers, and buying inventory. The major reason why this happens is that a small business often has to pay third-party suppliers for goods before they get to receive their own pay for the goods. It is the time lag between when payment is made for inventory and when revenue is generated from them that causes major cash flow problems for small businesses.

One way a business is to determine if it can meet up with monthly loan payments is by calculating its debt-income ratio. Let us assume that a business has a cash flow of $6000 and is willing to make loan payments of a maximum of $2000 each month. In that case, the debt-income ratio is 3. Most lenders have been known to require a ratio of not less than 1.5 before considering lending to a business. In as much of as the idea of a bank making sure loan payments would be somewhat convenient for a business is somewhat laudable, a small business finance company, however, would not bother with such things as debt income ratio. For example, merchant cash advance providers who are leading providers of quick business loans to small businesses are generally willing to offer a business as much as 50 % of its monthly revenue as a loan, provided it meets the minimum revenue requirement which for most merchant cash lenders is $10,000. Meanwhile, the amount of loan a business is seeking could also determine if it should approach a bank or not. After all, most small businesses seek loans of less than $15,000, which banks are not willing to underwrite. The reason they do not is simply that it would cost the same thing to process a 2 million dollar loan than it would a 50 thousand dollar loan. But banks stand to make more profit from the former. That is one reason a business could opt for a small business finance company such as those that offer merchant cash advance since they are ever ready to provide loans as small as $5000 to a business that is qualified.

Read More: As 2018 Begins, Lots of Small Business Loan Options are Open to Entrepreneurs

Final note on alternative lending

Throughout this discussion, we have pointed to the fact that a small business finance company particularly that which has to do with merchant cash advance. The reason emphasis has been laid merchant cash advance is because it offers much more for small businesses in dire need of cash. Starting from the ease with which a cash advance can be obtained to the speed with which it can receive— often in a matter of a few business days—merchant cash advance has proved to be an invaluable source of funding for small businesses. Need we mention that there is no collateral requirement, or that it is not necessary for a firm to have a good credit score to benefit? In short, from whatever angle one chooses to see it from, merchant cash advance is well worth its cost. More and smaller business owners are beginning to embrace the opportunities provided by a small business finance company, but with a special tilt towards merchant cash advance, which is not at all surprising.


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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