Working Capital Loan or Business Cash Advance – which one is better

Both of these methods are used for working capital financing but which one is better will be clear from following discussion

• Qualification ease: Working capital business cash advance is difficult to obtain because for working capital funding financing bodies factor in the credit score of the borrower, available collateral and various other factors. However, most small businesses would easily qualify for a business cash advance as all you need is certain amount of credit card processing in month.
• Processing Time: It’s a week or more for working capital loan to get approved as a lot of paper work is involved. While application for business cash advance is processed much faster (pre-approval in 24-72 hrs) and the paper work is also not much. In fact with companies like MerchantCashAdvance processing is done online.
• Ease of Repayment: A business cash advance is never tied to a fixed repayment schedule. The repayment is done from credit card sales receipts and the businesses generally do not feel the pinch. Working capital loans on the other hand would have a fixed repayment schedule and the borrower would need to repay the amount according to the schedule. If the borrower fails to repay the working capital business cash advance, it might affect his credit score and he also stands the chance of losing his collateral.

Want Small Business Funding Fast – Get your basics right

Your bankers should be your first stop in applying for small business funding. You and they have a history of working together. Familiarity goes a long way in pre-clearance of doubts and insecurities. Also banks offer slightly better rates for commercial loans than others.

But banks are more circumspect, and adherer of rules and guidelines regarding the borrower.

There are many other types of business lenders. The main differentiating factor is the type of loans they offer: secured or unsecured loans.

Banks usually offer unsecured ones, while independent financial organizations favor secured loans more.

These independent financial organizations are prepared to take more risks on startups and smaller businesses than banks. Often they specialize in particular industries, types of loans, or business sizes.

Essentials of loan applications

It is the first and perhaps the most important part of borrowing process, especially small business funding. Applying for a commercial credit requires a lot of preparation. Following are some key documents you are required to prepare:

• Financial statements: balance sheet, profit and loss statement, and tax returns of the company
• Personal financial statements and tax returns for last three years
• Cash flow estimates on the monthly basis
• Comprehensive business plan
• Precise loan utilization detailing
• Profiles of decision making people i.e. top management

The thoroughness and accuracy of these documents are absolute musts for successful borrowing, so it pays to prepare them carefully. Have your financial documents reviewed by a qualified accountant before presenting them.

Business Cash Advance, a Good Alternative:

But is there any alternative to loans so far as the small business funding is concerned? Yes, there are many other companies that are offering business cash advance to small business owners.

Business cash advance is not a loan and the organization offering this cash advance gets their money from the credit card sales that the business does in a specific period, there by reducing the burden of paying back the loan and the terms and conditions to qualify for such cash advance are also relatively simple and can be good alternative to bad credit small business loans as they come at very high interest rates.

There are quite a few organizations which provide such cash advances. Organizations like MerchantCashDirect usually provides cash advance for working capital needs. They more often than not, target specific industries.

I hope that I helped clear some doubts and given some useful information. If information is power, you are now empowered to succeed in your endeavor to secure loan, there by realize your dreams.

Tips for Small Business Loans

Often, funds are needed by small business owners for expansion, advertising or for some other purpose. Whatever the reason, there are a lots of financing opportunities available. But to get an approval for your loan application, you need to meet the necessary criteria.

* Your chances of obtaining a small business Funding dramatically increase if you have a detailed and convincing business plan. Any lender would want to confirm whether a customer seeks your products or services and how much profit you make. A business plan provides an insight into your management capabilities, information about the market in which you operate, and the kind of business you are.

* The higher the rate of return you can offer to your investors and the faster you can produce it, the more your chances are.

* The business plan must contain information regarding what sort of competitive edge your business has over your competitors.

* It’s important to get a copy of your personal credit report and check it thoroughly for any inaccuracies. All accounts should be current and there should not be any out standings. In case there is any derogatory information, it is better to explain in written exactly what caused those problems and why the problem won’t take place again in future.

* Get a photocopy of all your business records of the past three years such as financial statements, tax returns slips, interim year-to-date financial statements etc. Get them signed off by your accountant or tax advisor.

* Be precise and clear about how much funding you require and get the paperwork done to show why you need it and how you will pay it back.

Normally it takes several weeks to close a loan. And once a loan gets an approval, it can take 30 to 60 days to fund. But if you are looking for quick small business funding then there are investors in the market who provide small business loans hassle free and quite fast probably within 10 business days.

Normally these lenders don’t seek any documents. Instead loan is granted based on your monthly credit card volume. You easily qualify for a new or a small business loan if you process a minimum of $4,000/month. After you obtain a small business funding from such lenders; it’s left up to you how you utilize those funds.

Choosing Between Small Business Funding and Small Business Loan

For many, the term ‘small business funding’ and ‘small business loan’ may not make much difference until they are aware of the pains involved in getting a business loan approved, however small it may be, and comparatively the rather painless process of acquiring small business funding.

The common feature in them is that they both are sourced to sustain, expand or remodel your business. But they are widely different when it comes to the process and cost involved in obtaining funds through each one of them and repaying the same.

Let’s compare the process first

Process Initiation:

Small Business Loan: The process starts with contacting a bank or loan agent and filling a loan application form.

Small Business Funding: You already have a merchant account and are accepting payments through credit card. All you have to do is just fill in your details in a form and submit it, even online, to companies that offer cash advance.

Approval Process

Small Business Loan: The bank will pull out your credit rating, look into your credit history and check whether you have the capability to pay back the loan. In case you have bad, poor or even average credit rating, the chance of approval for your loan application is quite low. Even if approved, the rate may be considerably higher.

Small Business Funding: There are no credit checks here. You can get approval even if you have poor credit rating as this type of funding has nothing to do with your credit score.

Approval Time:

Small Business Loan: Along with poor chances of approval (in case of bad credit history) the loan approval time due to involved intricacies and formalities is much longer.

Small Business Funding: The time taken for such funding to be approved and the cash transferred to your bank account varies from 48 hours to one week. That means you don’t have to wait much to be sure that you have enough funds to back your business plans.

Now let’s compare the cost involved in the process

Closing costs and processing fees

Small Business Loan: The closing cost and processing can vary from lender to lender and the amount of loan. But one thing is sure no loan can be free of closing cost and processing fee and you have to bear the burden.

Small Business Funding: There is no closing cost and no processing fee involved. That means you repay only what you get.

Repayment Method and Time

Small Business Loan: Your lender will fix time for you and you have to strictly adhere to repayment schedules or else you will be charged with penalty. Every delay in repayment of your monthly installment can cost you late fine and other charges.

Small Business Funding: You are not tied with any strict repayment schedule. A mutually agreed upon percentage from your credit card sales automatically goes towards repayment of your loan. This makes repayment much easier.

Now let’s see why small business funding is not a loan?

This funding is allotted to you against your future credit card sales. That means the merchant bank anticipates that you will have good sales in future buys your future credit card receipts. Hence the bank buys your future credit card sales and agrees to provide you with the working capital you immediately required.

So what are you waiting for? If you are in business for at least 1 year and have good volume of sales through credit card, you can apply for small business funding immediately and get the much needed working capital within a few hours in your bank account.

How Big Should Your Small Business Loan Be?

As big as it can get, would be the answer from most small businesses and entrepreneurs, especially those who want start a new small business with start up loans.

But applying for not less than adequate financing for your small business, or getting more than what you require, can have serious negative consequences.

Not having enough credit can cause a lot of problems, right from losing a substantial sale because you don't have the cash handy to buy the necessary materials to meet the order or even perhaps having to shut down the company because you can't pay your employees.

One way out of this mess is to apply for additional credit. But then the underlying risk here is that some credit sources will interpret this as inept management. They may ask why you weren't able to correctly forecast your needs in the first place. Or even worse, that you aren't fiscally responsible.

Getting more than required to meet your Small Business Financing need may seem like a good idea but it can lead to a cavalier attitude toward expense control. "If you've got it, spend it" is not a suitable motto for any company. And credit costs money, if you use credit to pay for expenses that you have adequate cash for, you incur unnecessary interest expenses.

So how do you know what level of small business loan is just right for your business? That's what cash flow projections are for.

Every business owner should sit down once a month and project their cash requirements for the next six months. For example: You may know that the summer months are your busiest months. Sales will double for the months of June, July, and August.

But since you offer 60 day payment terms to your customers, you won't see that cash starting to come in until August. And you've had to fund, somehow, the sales for June and July.

That's where a smart small business financing strategy comes in. You can use a revolving credit line to pay for your needed inventory in June and July and start paying the credit line back down in August, September and October.

The trick is you can't start looking around for a credit source in July. If you've done your cash flow projections you'll know what your requirements would be beforehand, giving you enough time to find the credit source you need, at the terms right for your business.

Credit, of course, can be used for emergencies such as repairing broken equipment or to paying a one time yearly expense and then you can spread the credit payments over the entire year.

It can also be used to help a company expand its operations.

Introducing a new product almost always take longer than anticipated. Reaching a new target market requires patience, time and money. There can be delays in regulatory approvals, getting a patent, acquiring licenses. Moving to a new facility may mean additional unbudgeted expenses.

A small business financing such as Small Business Start Up Loans, used carefully, can help solve these situations and others. It can be a cushion against the unknown and a good financial management tool.

Worried about your bad credit score? Read on…

You got great plans backed by great projected numbers, but your application for new business loan or start up loan to open a small business gets rejected. Not once but again and again despite all the efforts you put in refurbishing your application.

You must be wondering why! Answer is your not so good credit score. Some bad performance in repaying the past credit has come back to haunt you. Let’s see how.

How Bad Credit Happens

Financial misfortunes occur due to a number of causes. A business venture didn't go as planned, a job was lost, divorce, unforeseen expenses or needs, mishaps, health issues, etc., I'm sure you know how the story goes. When things like this happen the bank account gets stretched. First the savings get used up, then the lines of credit, credit cards, and department store accounts take on a greater load. What follows is the juggling of debt, delayed payments, collections, settlement makings, re-possessions, foreclosures and perhaps bankruptcy. Most of this will have a negative impact on one's credit score, known in both Canada and the US as a "beacon score".

Once the beacon score is weak (or low, since it is a numbering system score), it becomes difficult to get credit. It becomes next to impossible to get New Business Loans or Small Business Funding needs. Forget loans, even credit cards which are necessary for booking hotels or travel reservations, for car rental, or for purchasing anything online (you do shop on e-bay, don't you?) becomes hard to come by.

What to do

If you have bad credit, it generally cannot be avoided on your credit report. However, you can help to correct credit errors or misunderstandings by writing a letter to the creditor or by writing letters to be included within your credit reports. Sometimes, a letter explaining a sudden loss of a job, a lay off, or a long-term illness will change the view of the lender in reviewing your credit report.

Additionally, you should provide any documentation proving your reason for failing to pay on your debts. By law, credit reporting agencies are required to include letters of explanation along with any documentation proving such explanation with the credit report. As a general rule, a bad credit report usually stays upon your record for a period of 7 years. If you need further information about changing a bad credit report, please seek the advice of an attorney.

Some More Tips For Availing Business Grants

In my last post I offered some tips to avail business grant if you want funding for your small business. Following are some more tips to make business grants a good financing option for your small business.

1) Grants are given on a cyclical basis. Find out about upcoming deadlines and of course there would be a wait for several months for a decision. So don't expect a quick answer because it doesn't happen that way.

2) If your requirement is for larger amounts of funds, one grant would not meet all your requirements, so do tap other funding sources such as banks providing small business financing.

3) Whatever you do don’t lose your business focus. Keep watching your business process. It's easy to get distracted by the allure of grant money and this can become the focus of your energy rather than building your business.