At The Small Business Authority, the Merchant Cash Advance, Accounts Receivable Financing, and Term Lending programs are ways to finance business growth. Depending on your company’s needs and creditworthiness, as well as the amount of debt with which you are comfortable, one or more of these options may be right for your needs.
Weighing the Options
The Merchant Cash Advance program gives you cash right away, but it’s a little more expensive. Factoring of accounts receivable is a mid-priced solution that is available for companies in most industries, and term loans give you the best deal in terms of cost of capital, but are typically secured by hard assets. Here are the details:
1) Merchant Cash Advance—This is an unsecured debt solution available to any company that accepts credit cards. The “borrower” sells a portion of his future credit-card sales and gets the cash advance within three or four business days. The maximum advance amount is $150,000 per location, and a portion of daily credit-card sales goes toward paying it back. The discount rate at which the receivables are purchased depends on month-to-month credit-card sales volume and credit score. For example, the lender might buy $10,000 worth of receivables for $8,000, with 22 percent of all credit-card sales going toward repaying the $10,000. Paying the advance back is less burdensome than with a bank loan. If sales are slow, the advance is paid back over a longer period of time. If sales are strong, it is repaid faster.
2) Accounts Receivable Financing—This is also called factoring, and with the exception of construction and some service industries, is widely used as a way of covering a gap between outgoing payment for raw goods or inventory and the receipt of cash on sales. The Small Business Authority, which underwrites all of its programs in-house, will finance $10,000 to $500,000 worth of receivables, the stipulation being that the goods must be delivered to a U.S.-based customer. B2B as well as B2C companies are eligible to fund their businesses this way. No debt is incurred, so personal credit scores will not be affected. The rates range from 12 to 20 percent.
3) Term Loans—The Small Business Authority specializes in government-backed term loans as part of the 7(a) program from the U.S. Small Business Administration. It’s the most flexible of the programs in that the funds can be used for essentially anything, from real estate purchases or refinancing to working capital or inventory needs. As a preferred lender, The Small Business Authority underwrites and approves the loans entirely in-house. Funding ranges anywhere from $50,000 to $5 million at a rate of prime plus 2.75 percent. The loan term can be seven, 10, or 25 years, depending on the use of loan proceeds. Loan proceeds can be combined so a debt refinance that is typically termed over 10 years, for instance, can be combined with a mortgage loan, typically 25 years, and the combined package would default to the longer term (25 years). The monthly payments would thus be lower than two separate loan payments.
The Small Business Authority is a partner to many small businesses. Over the years, many startups have grown to maturity using the financing available from the Merchant Cash Advance, Accounts Receivable Financing, and Term Lending programs. The Small Business Authority has probably helped companies similar to yours.