My OperaMerchant Cash Advances vs. Small Business Loans - A Question of Risk
Wednesday, October 2, 2013 12:28:40 PM
At Merchant Cash Advance Nation, we are certainly not opposed to the Small Business Association (SBA). We recognize that the SBA is more than a source of funds, but a significant supporter of small businesses and their owners throughout the nation.
We also believe that it's important to consider all funding options before choosing one. The SBA has the cachet of history and stability, while merchant cash advances do not, but there are some downsides to an SBA loan.
SBA Loans are inherently risky
One of the biggest disadvantages to a loan from the Small Business Administration is risk. For both the lender and the borrower these are high-risk loans.
For the lender, the greatest risk is that the borrower will default. Statistics from 2009 (the most recent year for which complete data exists) show that about 12% of small business loans "failed" that year. That means they went into default.
For borrowers the risk of default is also high, especially in businesses which depend on seasonal volume (ice cream shops, holiday décor stores) to make the bulk of their income or from start-ups which lack the brand loyalty and history needed to stay afloat during slow times. Another risk, though, is that of losing personal assets, because small business owners often secure their business loans with their personal savings, or with their cars and/or homes.
Why is the failure rate so high? Part of the problem is that SBA loans - like all bank loans - are fairly inflexible. Once the contract is signed, the payment amounts and due dates are fixed, and even one missed payment could trigger dire consequences.
Merchant Cash Advances may be better options
If you're a restaurant owner, retailer, or other small businessperson, then, and you don't wish to risk your family's security on your business, good for you. Chances are, you're also pretty cautious when it comes to incurring any kind of debt, whether or not it comes with a fancy government guarantee.
Where, then, do you turn for the infusion of liquid capital that your business sorely needs, especially during a time when sales are slow? A bank loan is one option, but a merchant cash advance may be a better one.
While it's true that merchant cash advance payments can take away a significant portion of your monthly credit card receipts, it's also true that those payments will be smaller when business is slower. As well, merchant cash advances do not typically require collateral of any kind, just proof that your business has been operating for a minimum length of time, and doing a minimum amount of volume.
Merchant cash advances are also easier to obtain - no credit scores or extensive paperwork - and can be set up without a fixed repayment term, so while we say that most advances are repaid within a year, we really do mean 'most' and not 'all.'
There is an old adage that 'it takes money to make money.' At Merchant Cash Advance Nation, we, like other merchant cash advance providers, understand that a business without working capital is doomed to failure.
We cannot tell you that a merchant cash advance is absolutely the best choice for you and your business. We can tell you that you should at least consider the option with the least amount of risk.
We also believe that it's important to consider all funding options before choosing one. The SBA has the cachet of history and stability, while merchant cash advances do not, but there are some downsides to an SBA loan.
SBA Loans are inherently risky
One of the biggest disadvantages to a loan from the Small Business Administration is risk. For both the lender and the borrower these are high-risk loans.
For the lender, the greatest risk is that the borrower will default. Statistics from 2009 (the most recent year for which complete data exists) show that about 12% of small business loans "failed" that year. That means they went into default.
For borrowers the risk of default is also high, especially in businesses which depend on seasonal volume (ice cream shops, holiday décor stores) to make the bulk of their income or from start-ups which lack the brand loyalty and history needed to stay afloat during slow times. Another risk, though, is that of losing personal assets, because small business owners often secure their business loans with their personal savings, or with their cars and/or homes.
Why is the failure rate so high? Part of the problem is that SBA loans - like all bank loans - are fairly inflexible. Once the contract is signed, the payment amounts and due dates are fixed, and even one missed payment could trigger dire consequences.
Merchant Cash Advances may be better options
If you're a restaurant owner, retailer, or other small businessperson, then, and you don't wish to risk your family's security on your business, good for you. Chances are, you're also pretty cautious when it comes to incurring any kind of debt, whether or not it comes with a fancy government guarantee.
Where, then, do you turn for the infusion of liquid capital that your business sorely needs, especially during a time when sales are slow? A bank loan is one option, but a merchant cash advance may be a better one.
While it's true that merchant cash advance payments can take away a significant portion of your monthly credit card receipts, it's also true that those payments will be smaller when business is slower. As well, merchant cash advances do not typically require collateral of any kind, just proof that your business has been operating for a minimum length of time, and doing a minimum amount of volume.
Merchant cash advances are also easier to obtain - no credit scores or extensive paperwork - and can be set up without a fixed repayment term, so while we say that most advances are repaid within a year, we really do mean 'most' and not 'all.'
There is an old adage that 'it takes money to make money.' At Merchant Cash Advance Nation, we, like other merchant cash advance providers, understand that a business without working capital is doomed to failure.
We cannot tell you that a merchant cash advance is absolutely the best choice for you and your business. We can tell you that you should at least consider the option with the least amount of risk.
