Banks are always the first avenue that any business approaches for funding its cash requirements. An established business with a solid reputation and credit history might find the process of getting a bank loan quite simple. However, banks are wary of small businesses or start-ups and do not approve loans for this sector that fast. Hence small businesses are increasingly turning towards private lenders for a cash advance.
Private lenders are emerging as dependable players in the lending industry for small businesses to meet their cash requirements. Unlike banks, these institutions do not require an applicant to go through a cumbersome verification process or assessment of credit history. The loans that these private lenders disburse are known as a merchant cash advance (MCA) and are usually short term loans for a maximum period of 1 year.
Why do small businesses need private lenders?
A small business is usually not in a position to give a high credit score or offer collateral securities that are required to get a bank loan. Private lenders do not consider credit score to be a crucial factor to consider while advancing a loan. Additionally, these MCA loans are unsecured and do not require any collateral. Even a business with a bad credit history might stand a chance of securing a loan from these private lenders. Hence for a small business, these lenders are the most dependable source of finance they can turn to in their hour of need.
How do private lenders work?
The process of obtaining a cash advance from a private lender is quite simple. You don’t have to go through the frustrating questions and tiring documentation that are required in bank funding. Here you need to fill out a basic form that collects certain information such as the age of the business, it’s monthly sales, the amount of funding required, purpose of funds, and existing loans of the owner. Once the private lender is satisfied with these details, a loan is usually granted without much delay.
Benefits of MCA loan
- High approval rate – MCA shows a higher approval rate than banks. Most of the applications are usually approved by private lenders.
- Revenue-based collections – Private lenders collect money based on the revenue made by businesses. Hence repayment of an MCA doesn’t cause any pressure on the small business owner.
- Simple process- Small businesses may not always have the documentation that a bank requires for approving a loan. However, the process is quite simple for an MCA loan. There is no need to produce any cumbersome documents or collaterals. Since collaterals are sidelined in an MCA small business have been increasingly showing a preference to approach private lenders for their cash needs.
- Fast loan disbursal – Unlike a bank funding that might take months for a loan to get sanctioned, MCA will provide the business with the much-needed cash in the quickest turnaround time. Usually, loans are approved and money is credited to the bank account of the applicant in 48 to 72 hours and the maximum time they would take is a week or two.
Next time you need a cash advance, you might want to consider a private lender for these benefits.