Earlier, if you asked a group of small businesses owners which financing option they feared going for, a good number would shout Merchant Cash Advances. Why? MCAs are known for sky-high fees and are often the only option for companies with bad credit histories.
In fact, the merchant cash industry originally came into the lending market as a product for unbankable retailers. However, the surfacing of alternative lending options is changing the public opinion of MCAs. The commercial funding world has transformed for the better of the businessperson; meaning you dont have to struggle with high fees and interest rates to get a merchant cash advance.
One advantage with cash advances over small business loans like equipment or SBA loans is the fact that you dont need any form of collateral to acquire one. According to a 2016 study conducted by deBanked &Bryant Park Capital in 2016 assessing the confidence of retailers in the cash advance, 92% of small businesses are optimistic about accessing such loans. Investors are also increasingly supporting this method of funding.
Recently, PIRS Capital made it known that theyve acquired a revolving line of credit line from an anonymous institution to keep on offering working capital to entrepreneurs.
Another factor that has encouraged a shift in the reputation of MCAs is the industrys quick adoption of newest technology. Lending companies are now employing up-to-date tech including those that utilize machine learning to underwrite loans using a collection of data points. This unique approach of dealing with borrowers offers a lender the edge to survive in a competitive marketplace. This new idea is a game-changer as the model re-teaches itself day after day finding newer trends which are helpful in decision making.
Moving forward we expect to see the power of technology enable firms to account extensive economic data. Who knows what data sharing could do to the commercial funding industry if it all it becomes part of the alternative lending and space? A lot, because; while some data points are better kept to a single company, others are more helpful if shared and displayed on national databases. Plus technically, MCAs arent loans they are based on anticipation of oncoming revenues which makes them significantly riskier and prone to fraud. Therefore a joint database among Cash Advance firms could help raise red flags and warn service providers of bad actors.
With players like Wells Fargo and Capital One in this line of investment, we expect to see small businesses grow courtesy of the once stained merchant cash advance industry. All these new developments are slowly eliminating the stigma.
Author Bio: Business Funding expert, Michael Hollis prides himself in being able to help the small business owners acquire merchant cash advances. When he isn’t helping merchants, you’re more than likely to find him eating at one of LA’s tasty Vegan restaurants.