You may have heard about a form of lending known as a Merchant Cash Advance (MCA) which is currently growing in popularity. So what is an MCA and how can it be used by a small business? Read on to find out…
MCA’s are potential solution for businesses that need to maintain cashflow and are often applied for when it hasn’t been possible to secure a business loan. This is the case for many small businesses that apply for loans each year.
In fact net lending to small businesses in the UK has fallen from £3 billion in 2016 to just £700 million in 2017 which marks a substantial fall. The difficulty of obtaining a business loan from a traditional lender is as problematic as ever but all is not lost with a growing range of alternative options available.
The MCA doesn’t require any collateral to secure or even a personal guarantee. The money owed is simply paid back via card transactions. This makes this type of loan most suited to businesses that use card terminals on a regular basis to collect payments such as restaurants and retailers.
An up front cost is paid to receive a cash advance and the remainder of the advance is paid off by having a small percentage pf each card payment being paid to the MCA provider.
This makes repayments more flexible because the percentage remains the same and the amount paid will fall accordingly if takings are down.
If you would like to find out more about alternative sources of finance for your business contact us today.
Often one of the biggest barriers to small business and start up founders getting a business loan is a poor credit rating. So, if you have been turned down for a loan because you have bad credit let’s look into ways it may be possible to gain funding for your business even if you have a bad credit rating.
Find out why you have a bad credit record
Review your credit score online and find out what may be causing the problem. A poor credit score can come as a surprise and the first thing you know about it is when you are refused a loan. Sometimes the cause can be rectified if for example there are some discrepancies in addresses, your name isn’t on the electoral roll or if you have missed credit card payments.
Research lenders willing to provide loans to people with below average credit scores
Some lenders will consider business owners with below average credit scores so it is worth doing some research to find them. If your credit score is below 500 this can start to make life difficult and lenders willing to take the risk on you will become harder to find the lower your score is.
Look to alternative sources of finance that won’t require a good credit score
You may find there are plenty of alternatives available when it comes to finding funding for your business. Friends and family might be one avenue if they are understanding and supportive or asset finance could be an option.
Work to improve your credit score
Your credit score isn’t set in stone and it can improve significantly if you pay all your bills on time and avoid running up debts. Taking out smaller loans and using a credit can actually help improve your rating if you are sensible about making more than the recommended monthly repayments.
This is a common question asked by many a start-up founder who needs cash to get a business off the ground. The unfortunate reality is, a start-up represents a high risk to most lenders making them reluctant to provide loans to untested business start-ups.
While this might seem unfair, think of it from a lenders point of view. With an established business they will have some track record to go over before making the decision to lend. They will see things such as order books, records of paying customers and so on.
With a start up all they are likely to see is a business plan at best and an unproven business model. While the business might have huge potential in the eyes of the business owner, lenders, particularly those on the high street will be far more pragmatic.
Yet the start up phase is when a business is most likely to need the funding which is why it is important to discover what lenders of all types will be looking for before they offer a business loan.
If your business doesn’t have any sort of track record to rely on, then lenders will look at things such as your personal credit rating. If this is good then it will make you less of a risk as the business owner. Also you could look at alternative sources of finance such as asset finance depending on the assets your business might already possess.
There will be pros and cons to using any form of loan to fund your business and bridging loans are no exception. So to help you decide if a bridging loan is right for your business, here are some of the advantages and disadvantages of bridging loans.
So first let’s look at some advantages…
They are fast
Bridging loans tend to be arranged faster than other types of loan because they can often be used for urgent sources of finance when waiting too long might put the future of a business in jeopardy.
You can use more than one type of security
As long as the security you are using will retain its value. This means you can use assets that you may not be able to use as security for other types of loan.
The cons of taking out a bridging loan are…
You need assets to secure the loan
Unlike other types of loan, a bridging loan can only be provided if there are assets which can be provided as security.
You will be required to pay a lump sum at the end
This means the pressure is on from day one to earn enough money to cover the loan repayment at the end of the agreed term.
If you would like to find out more about the various different types of business loans available. Contact our experts today.