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Inventory-Secured Loans: How to Finance Your Inventory and Receive the Best Terms

Maintaining sufficient working capital is among the primary challenges small business owners face in today’s unpredictable economic clime. When your cash flow starts flagging, seemingly without notice, access to fast funding might appear daunting at first. But luckily, there are several sources of alternative business funding you may not have considered yet, one of which is inventory financing.

In this article, we’ll provide you with a comprehensive overview of inventory financing, its suitability to different business types and applications, its associated pros and cons, and best practices for applying for an inventory-secured loan. By the end, you’ll have sufficient knowledge to make an informed decision about whether or not inventory financing is right for you.

What is inventory financing?

Inventory financing can be an excellent choice for business owners who need quick solutions for replenishing their stock. This loan product represents a type of short-term borrowing solution that gives businesses an opportunity to purchase inventory they can’t pay for upfront at an affordable rate.

The concept is fairly simple. Any inventory you purchase, as well as your existing stock, serves as collateral for the loan. Should your business default on the finance payments, the assets you staked can be collected by the lender to cover any potential losses.

The nice thing about inventory financing is that it’s customizable pursuant to your business needs. You can expect this financing type to come with several unique financial terms engineered to meet your specific requirements and strategic objectives.

The lending terms can vary, with payoff lengths from three months up to three years or more. Borrowers may opt for a set or variable annual percentage rate (APR). Depending on the lending institution, inventory financing term loans, for example, can start as low as $20,000 and go up to $1 million for qualified businesses. Some creditors may allow you to borrow up to 100 percent of your inventory’s value, as well.

Since inventory financing can be tailored to your specific needs, you’ll usually find ample flexibility when it comes to selecting your ideal loan terms. For business owners who need an adaptable financing solution, inventory financing often serves as a reliable long-term option.

This financing type is a great way to build your business through the acquisition of new inventory that you may not have the capital to cover. With the guidance of a business finance expert at New Bridge Merchant Capital, business owners will find identifying and securing an efficient and cost-effective inventory financing option that can be custom tailored to meet their unique business needs.

Which types of business benefit from inventory financing?

Inventory financing is, of course, by implication, best suited to businesses that sell tangible products. It helps ensure your shelves are well-stocked, even in the face of an unexpected financial shortfall.

Inventory financing lenders help companies like yours maintain healthy cash flow while they increase their stock levels. While inventory financing is primarily orientated toward retail stores, wholesalers, and specialty shops, it also offers seasonal businesses a reliable means of boosting their cash flows.

This financing type works by allowing companies to use the value of their inventory as collateral for the proposed funding. The funding structure is generally flexible, and certain lenders may focus on specific types of businesses.

To qualify you for inventory financing, lenders typically assess your financial track record rather than the items you aim to sell. The traditional approval process could make inventory financing less suitable for startups buying inventory for the first time or those with no prior sales.

The possibility of attain an inventory financing loan when you’re first starting out is, by no means, excluded, however, when you consider alternative lending sources. Regardless of who you choose to finance your inventory, this method of borrowing can help you build your business credit and generate short-term working capital to leverage long-term growth.

When should you consider inventory financing?

Any established business that needs to stay well-stocked and increase its inventory levels should consider inventory financing. It’s suitable for several business types, including retailers, wholesalers, and specialty stores. It may also be an effective solution for businesses that experience seasonal fluctuations in demand and need to cover their expenses during the off-season.

Inventory financing lenders assess your business’s financial track record rather than the individual goods you stock. As mentioned, this can make the option less suitable if you’re just starting out.

However, before discounting this option entirely, it’s worth consulting with a reputable business lender to see if you can still qualify for inventory financings or other alternative funding solutions, such as a business credit card, merchant capital advance, or secured term loan.

Inventory financing is a dependable way to sustain a healthy cash flow while expanding your inventory levels to increase sales. But remember to never underestimate the importance of working with credible inventory financing lenders that understand your industry and can provide the right terms to meet your specific requirements. You should also weigh your inventory financing options carefully against other alternative financing solutions to ensure there isn’t a better loan product for your application.

The different types of inventory financing

Many small businesses rely on short-term funding to restock their shelves and pay for supplies upfront, which is why inventory financing has proven vital for managing a stable and profitable business. There are essentially two traditional inventory financing options: loans secured by inventory, or inventory equity loans, and term loans. Both have advantages and disadvantages, and the effectiveness of the financing depends on the season and fiscal health of your company.

For example, inventory financing has grown popular because it allows business owners to use their inventory as collateral to secure a loan from lenders. This type of loan also allows lower credit scores when compared to other loan options, making it among the more accessible short-term financing solutions for low-credit or no-credit business owners. These loans tend to carry a higher interest rate, however, which is why you should explore all your options before committing to any one product.

Unsecured term loans, on the other hand, do not require you to stake personal or business collateral. This loan type usually benefits customers with higher credit scores who are in a good position to take advantage of the lowest borrowing costs. With that mentioned, since the loans are unsecured, they traditionally have stiffer credit requirements than secured loans and, in some cases, higher interest rates.

Alternatives to inventory financing include merchant cash advances, lines of credit, and accounts receivable financing, which many often misconstrued as inventory financing. These alternatives can be more expensive than traditional inventory financing solutions. Nonetheless, they typically entail a streamlined application process for unconventional borrowers who need fast access to working capital.

Knowing the advantages and disadvantages of inventory-secured financing will help you decide on which option best suits your needs. Whether it’s traditional inventory financing or an alternative solution, business owners should take the time to consider every available loan product to ensure the best results.

Loans secured by inventory advantages and disadvantages

While traditional inventory financing is a popular option for many small business owners, the decision to pursue this type of financing must be carefully evaluated. It can provide capital for increased inventory purchases or prevent cash flow issues. It’s not entirely without its downsides, however.

Inventory lines of credit and inventory term loans are generally considered “traditional” inventory financing. Your inventory secures these loans, and the maximum dispersal amount depends on the value of the goods you’re staking as collateral.

In many cases, down payments of around 20 percent may be required before securing the financing. Borrowers must repay the loan in a timely manner, or the inventory is subject to repossession. Likewise, you may be required to use specific fulfillment centers in order to qualify for the loan.

When it comes to satisfying the obligation, you’ll make monthly installments, or the lender may collect a percentage of your sales. It’s also common for a fixed fee to be charged instead of interest, resulting in APRs (annual percentage rates) often surpassing 100 percent. Further alternatives to traditional inventory financing include alternative bank lines of credit, merchant cash advances, and secured and unsecured term loans.

Now that you have the gist of how conventional inventory financing works let’s take a look at a few different popular alternatives to traditional inventory financing:

Lines of credit

Lines of credit give you access to the funds required to replenish your inventory as needed. You can use your inventory as collateral. Or, if you qualify, apply for an unsecured line to cover your operating costs.

Lines of credit require a few more steps than inventory finance loans, however, because you’ll likely have to hand the payment over to the manufacturer yourself. This can make the option more labor-intensive than traditional inventory financing, one reason why some prefer the latter over the former.

Compared to inventory financing fees, the costs to open and maintain a line of credit are usually less expensive. Credit lines typically have an interest rate rather than a fixed fee. Nevertheless, credit lines from online lenders may have higher rates – with APRs reaching as high as 80 percent or more in some cases.

Term loans

A term loan provides a one-time lump sum to be repaid in intervals over a specified time, plus interest. A term loan is a suitable financing option for businesses that do not often require inventory financing or don’t routinely take advantage of it.

Like a line of credit, you can stake your inventory as collateral for the loan. Assuming you qualify, you might also pursue an unsecured term loan that requires no collateral and shifts more risk onto the lender than secured financing.

It’s worth noting that, while the term loan gives you access to funds for attaining additional stock, unlike inventory financing, you are still responsible for paying your suppliers directly, and it may take more time to obtain the inventory itself.

Merchant cash advances

Lenders provide merchant cash advances based on the average monthly sales for businesses that serve customers, such as retailers. Business owners will receive a percentage of their average monthly sales up front and pay it back with a portion of their daily sales plus a fixed fee.

One of the primary upsides to merchant cash advances is that creditors rarely require credit checks or business seasoning. Merchant cash advances are among the most expensive business financing types, however, accruing APRs regularly reaching 300 percent.

The daily payments can be inflexible, as well. Seasoned business owners should, therefore, consider all their lending options before committing to a merchant cash advance since the costs can be high.

How to secure inventory financing

Inventory financing is an essential and viable solution to attain working capital, but it’s equally important to remember you have access to several other effective funding solutions. Inventory loans, secured by inventory and accounts receivable, are suitable for businesses operating in competitive and cyclical markets where timely financing for inventory purchases is crucial.

This approach to borrowing can help you manage cash flow and stay ahead of your industry counterparts. While inventory financing has its benefits, there are a few disadvantages, like higher borrowing costs and a lack of flexibility with your repayment options. It’s, therefore, crucial that you weigh the pros and cons and explore all your options before securing any business financing.

The experienced lending consultants at New Bridge Merchant Capital can guide you through the process of evaluating whether inventory financing is right for you. We can help you assess a diverse range of small business financing products, including alternative bank lines of credit, merchant cash advances, and secured and unsecured term loans.

Our decades of exposure to the business lending space can put your organization on the path to success, while our financing solutions deliver creative, customized options to businesses across several industries.

Searching for the right loan to secure your business inventory needs?

If you have additional questions on how to finance inventory, dial 844-228-0593 to speak with a New Bridge Merchant Capital lending consultant or apply online now. We’ll guide you through our full suite of business lending solutions that can help you take the next step towards expanding your footprint and securing stable, long-term profits.

Why Restaurants Should Consider Merchant Cash Advances as Working Capital Solutions

The restaurant industry is fiercely competitive and often unpredictable. With ever-changing customer demands and the need to stay ahead of the curve, it can be difficult for restaurants to find the financial flexibility required to make urgent changes. Leveraging merchant cash advances is one reliable way to gain fast access to the required capital that lets you make necessary adjustments to your approach.

Merchant cash advances (MCAs) offer an alternative to traditional small business loans, providing restaurants like yours with expedient working capital solutions. When you secure a lump sum of money, as in a cash advance, you can finance your operations without waiting months for your customers to pay their invoices.

New Jersey Merchant cash advances let restaurants make necessary improvements and upgrades, purchase new equipment, and hire additional staff to support their expanding operations. The repayment process is flexible and tailored to your business. The custom solution ensures that the merchant cash advance is manageable enough for your restaurant and you don’t take on too much debt.

In this article, we’ll cover why restaurant businesses like yours should consider a merchant cash advance as a dependable working capital solution.

What are merchant cash advances (MCAs)?

If you’re a restaurant owner exploring alternative financing options for your business, a merchant cash advance (MCA) is always an effective solution. A merchant cash advance is a type of financing that allows you to access capital quickly in exchange for a fixed percentage of your future credit card sales.

When you opt for a New Jersey merchant cash advance, you will receive a lump sum of cash upfront. This money can be used to reinvest in your business and cover unexpected financial shortfalls that are outside of your control. To repay the advance, you’ll pay back a pre-determined percentage of your future credit card sales. This repayment method is beneficial because it lets you make payments as your business grows. You won’t be tied to a steep fixed monthly payment.

In addition to this, a merchant cash advance requires no hard-asset collateral. For businesses that lack the necessary assets to secure a loan, MCAs are always a good option. The MCA approval process eliminates the need for lengthy paperwork or credit checks and is typically much faster than what you’ll experience at a traditional bank.

A popular alternative financing option for restaurants, MCAs come with a fast approval process, flexible repayment structure, and lack of collateral requirements, a merchant cash advance presents an effective means of accessing the capital you need to grow your business.

What are the benefits of merchant cash advances for restaurants?

Merchant cash loans give restaurant businesses the ability to receive a lump sum of cash quickly and without waiting weeks or months for your loan to be approved. This is especially beneficial in times of economic uncertainty, when traditional lenders may not be willing to lend to smaller companies with limited holdings. Merchant cash loans are, furthermore, used for diverse applications, including facility upgrades, funding marketing and advertising campaigns, and covering real estate costs.

Unlike traditional bank loans, merchant cash loans do not depend on your borrower risk profile. Instead, lenders evaluate your creditworthiness based on your credit card receipts, meaning that companies with poor payment histories can find funding with a merchant cash advance.

MCA repayment terms are flexible, with the payments taken directly from the anticipated credit card sales. This is especially valuable for restaurant businesses because it means you can remit payments regularly as you make sales and keep your business cash flow positive.

The advances provide an invaluable financing solution for low-credit businesses. With quick access to funds, flexible repayment terms, and no need for perfect credit, merchant cash loans are a reliable solution for any company that needs to overcome an unexpected shortfall, quickly. If your restaurant needs a fast cash injection, consider a merchant cash loan from New Bridge Merchant Capital to help shore up your long-term financial success.

Merchant cash loans for low-credit restaurant owners

As a restaurant owner with a low credit score, it’s easy to feel like you’re perpetually stuck between a rock and a hard place. You realize you need additional funding to help your business succeed, but your challenged credit prevents you from accessing conventional loans that are notoriously difficult to qualify for. Fortunately, merchant cash advances offer a way of escaping this misfortunate quandary and can help you reestablish your personal and business credit profiles.

You can use merchant cash advances for quick access to working capital that allows you to modernize your kitchen and hire additional staff. Unlike traditional loans, merchant cash advances are not dependent on credit scores. Instead, lenders establish your limits based on the volume of credit card receipts your business collects. This financing option lets restaurant owners with low credit scores secure the financing necessary to keep their businesses afloat.

The advance payments factor themselves against a percentage of your credit card sales. This way, restaurant owners can repay the loan over time, while simultaneously improving their credit situation. The benefits of merchant capital advance loans certainly outweigh their drawbacks because they are an effective solution for low-credit restaurant owners who need to establish a business banking partnership.

Merchant cash advances offer more flexible repayment terms than traditional loans. This makes it easier for restaurant owners to manage their cash flow and pay back the advance on their own terms. Merchant cash advances give you the immediate financial support you need to let your restaurant thrive while, at the same time, they can help develop your business credit profile.

Explore your MCA lending options with New Bridge Merchant Capital

To sum it up, restaurant owners with low credit scores can benefit immensely from merchant cash advances because they give them fast access to working capital. MCAs can help establish or reestablish your business credit. Meanwhile, you’ll build a relationship with a trusted business banking partner and continue funding your restaurant operations.

To find out your eligibility for an MCA loan or restaurant line of credit, fill out our online application or dial New Bridge Merchant Capital at 844-228-0593 to connect with a business lending consultant now.

Funding Your Small Business in 2023

The Complete Guide for Sourcing Reliable Small Business Funding in 2023

Navigating the realm of small business financing is often complicated. Sourcing the right loan product for your company is hardly a simple task, especially when confronted with so many different lending options for which your business may or may not qualify.

In an effort to help streamline your search for small business funding, the team at New Bridge Merchant Capital has assembled this free, extended guide to discuss the pros and cons of several common business loan product. By the end, you should have enough valuable information to make an educated decision about how to approach your current funding requirements.

It’s likely that you’re already familiar with some of these funding options. But even if you’ve been exposed to these business lending solutions before, they’re still worth revisiting since this comprehensive review will address several frequently asked questions about leveraging external business funding.

Before we dive into the specifics of how these financing options work, let’s start by looking at some common questions business owners typically ask before financing their projects.

What do my personal and business credit scores look like?

The vast majority of consumer loan products rely on your personal credit or FICO score for establishing creditworthiness and ability to repay the loan. When, for example, you open an unsecured line of credit, as in a revolving credit card, or take a secured auto loan, the lending institution reports your payment history to the following three major credit bureaus:

Equifax
- Consumer Credit User Guide
- Credit Report Request Form
Transunion
Experian

Most banks and businesses that extend credit convey to the three reporting bureaus your timely payment while penalizing your score if fail to pay within thirty days of your monthly invoice. If you are late an additional thirty days on the account, your credit report will indicate 60 days past due, at which point your FICO score falls even further. This cycle repeats until the creditor finally sells the account to collections.

If you’ve been operating your business for any substantial length of time and have opened a business bank account, you’ll have a business credit score, as well. Your business credit profile serves the same purpose as your personal credit score.

Instead of evaluating your personal payment history, your business score evaluates the status of your business accounts to determine loan eligibility and interest. If you’ve taken out a business line of credit or leveraged invoice factoring or term loans to fund your business in the past, your business credit score aggregates public records, debt utilization, and your’s company’s risk profile to generate a score.

In the US, like your personal FICO score, your business credit score draws from three reporting bureaus. While Equifax and Transunion report business credit history, Experion does not. In its place, lenders rely on Dun and Bradstreet’s decisioning analytics to establish creditworthiness.

Your business and personal credit scores tend to overlap; however, there are a few key differences worth mentioning. While personal credit scores range from anywhere between 300 and 800, your business credit rates you on a scale of 1 to 100. Under either scoring model, the higher scores indicate a more favorable credit profile. Most lenders look for a minimum of 680 for a personal FICO and at least a 75 on your business score before dispersing funds.

Will the approval process involve customers and supply chain partners?

The answer to this question depends on the financing type. Take invoice factoring, for instance, a loan product in which you sell your outstanding invoices to the creditor in exchange for funding. The lender grants the financing based on your unpaid invoices.

Under this business loan program, the approval process will likely involve contact with your buyers. Of course, on the downside, you’re introducing a third party in your customer relationship. Not all business owners feel comfortable with this dynamic -especially since your creditor collects the invoice payments directly from the buyer.

Alternative, short-term working-capital solutions like invoice financing give businesses an effective means of quickly accessing the funds they need to cover their daily operating expenses.

Ultimately, the decision is up to the business owner to involve their customers with their business funding. Despite this element of customer involvement, loan programs like invoice financing can be a reliable way to access cash for the services you’ve already delivered.

How much business funding do I need?

As you engage the business loan approval process, it’s entirely plausible that the lender could agree to grant you more funds than you actually need. This might sound like a desirable problem for businesses, but remember to keep the precise objectives of the financing in focus to avoid drawing too many funds, as this only increases your borrowing costs.

Unless you’re taking out a revolving business line of credit, you’ll only end up paying interest on the funds you fail to use. The additional interest expenses of borrowing too much can quickly add up, impacting your bottom line and making it a challenge to remain profitable and access financing in the future.

What are borrowing costs?

While borrowing to drive business growth comes with countless benefits, this is hardly a good reason to ignore borrowing costs. No matter who you borrow from, you want to ensure you find the most attractive business loan offer.

Make sure to origination fees, prepayment penalties, subscription fees, and any maintenance fees between prospective lenders. This way, you won’t overpay for your loan. The extra fees you’re looking for are any costs -hidden or expressly stated- that are above and beyond the interest payments made.

All fees should be present on your loan disclosure sheet. Beware closing “estimates” or incomplete loan fee disclosures. You’re likely to discover the costs to originate your business will be considerably higher when it comes to sign for the funding.

How does small business funding work?

Small business loans are given to businesses with well-documented cash flows to provide the additional working capital needed to purchase real estate, new equipment, inventory, and day-to-day operating expenses after a financial shortfall.

The US Small Business Administration defines a small business as any organization with 500 employees or fewer. Assuming you meet this criterion and qualify for small business funding, the creditor will proceed to review your qualifications for your preferred loan product.

Like personal, home, and auto loans, every business loan program comes with its own unique qualifying requirements that vary from creditor to creditor. As you begin the process of applying for business funding, you’ll invariably encounter several common business funding options.

Now, let’s take a detailed look at these business lending options in more detail below:

Traditional bank financing

Before the 2008 global financial crisis, traditional banks handled the lion’s share of the national business funding. In previous decades, as a business owner, you were likely to meet with an agent in person at a local branch where you disclose your credit history and financial details before signing the final loan documents and receiving the funding you need to cover your operating costs and continue driving your strategic growth objectives.

Banks have since tightened their credit requirements across the board, but this is especially true concerning newer companies. Aside from the Great Recession of ‘08, the COVID-19 pandemic brought several significant changes to the traditional lending environment. Business loan approvals declined by as much as half by the start of 2021, just one year into the global health crisis.

The year 2020 saw less than 14% of business loan applications approved. Businesses receiving during this time were well-established with strong financials and impeccable business and personal credit ratings. Even if you meet these stringent requirements and are fortunate enough to get through all the paperwork and the dozens of hoops you need to jump through during the loan approval process, you could wait months before receiving funding.

Traditional bank financing offers a few benefits worth noting, however. Assuming you can spare the additional loan processing time, conventional bank financing typically provides the most competitive interest rates and lowest borrower costs.

Generally speaking, traditional lenders can provide businesses with more substantial loan amounts on a fixed monthly payment schedule. They also prefer to build long-term relationships with their customers with their business banking customers.

Online business lenders and term loans

Traditional banks usually offer rate and term financing, but you can also access these same loan products from online business lenders. Online lending laws vary by state. Depending on your location and credit situation, web-based alternative business financiers can present viable business borrowing solutions.

As business loan approvals at traditional banks approved 13% of all business loans during the pandemic, approval rates for online-based alternative creditors granted loans to nearly a quarter of all applicants by the end of 2020.

Online creditors can typically process your file quicker and release the funds with fewer overall requirements than conventional banks and credit unions. Not all online lenders offer term loans, however. If you are searching for a term loan, New Bridge Merchant Capital can provide you with multiple options, and we work on your behalf to ensure you find the right loan product for your business.

When you take out a term business loan, the creditor releases the funding in one lump sum, typically at a fixed rate of interest, while you repay the balance over scheduled installments over the life of the loan. Business term loans can span anywhere from one to five years, with one year being the most common term length.

The primary advantage of business term loans, whether from a traditional bank or online lender, is that they usually fund higher loan amounts than the other funding options, which we’ll touch on in further detail below. Business owners prefer term loans for their larger, one-time investments that are too hefty to pay off in the immediate term.

Other benefits include:

A fixed amortization schedule over one to five years
Financing for a diverse range of benefits and objectives
Establishes business credit
May exclude prepayment penalties
Enhances future funding eligibility

However, not all term loans waive prepayment penalties, and most require higher credit ratings for approval. Borrowing costs for loan terms spanning one to two years can be steep, and creditors often require a personal guarantee or collateral assets before granting the loan. Like most loans, expect to pay origination and other fees at closing. Always remember to compare these costs against other offers.

Business lines of credit

Business lines of credit are like unsecured consumer credit cards or home equity lines of credit (HELOC). They provide you with a revolving line of capital that you can access when you need it. Unlike term loans, lines of credit give the ability to the outstanding balance down and replenish your existing credit for future use.

For illustration purposes, let’s assume you’re taking out an $80,000 business line of credit. Once approved, unlike a term loan, which is dispersed in one lump sum and paid back over a specified time, you’re entitled to draw funds up $80,000. Likewise, once you draw from your business line of credit, there is no amortization schedule or specified maturity date. You just have to make the minimum monthly payment.

So, in other words, like consumer credit cards, a business line of credit requires companies to pay interest on any outstanding balance they carry. Business owners may qualify for lines of credit with less-than-perfect credit, but they should expect to pay higher interest rates. Business lines of credit lack a fixed repayment schedule, making the loan interest more expensive than term loans, even for those with A credit.

Other details to keep an eye on when applying for a business line of credit are the fees associated with opening and maintaining the line. While you’ll almost always pay interest on the funds you withdraw, unlike term loans. In most cases, your personal and business credit ratings determine how much you can draw from your business line of credit.

In the unlikely event that you can’t repay the balance, depending on whether or not the financing was collateralized, a defaulted credit line could place your business at substantial risk. Like revolving consumer trade lines, it is easy to run up a high balance that can be expensive to repay and take a substantial time to reduce.

Lines of credit help you save on borrowing costs, however. You only pay interest on the funds you use, and you don’t have to originate a new loan to access working capital when you need it.

Merchant cash advances

Businesses that deal substantially in credit card transactions benefit from merchant cash advances the most. Lenders that offer merchant cash advances provide funding to companies in exchange for their future card receipts. Let’s assume the creditor decides to advance you $100,000. The lender will then request a percentage of your monthly credit card sales until you repay the original loan balance.

Typically, merchant cash advances serve as short-term borrowing solutions, and the repayment period rarely exceeds 12 months. Generally speaking, although terms and conditions can vary from bank to bank, the lending institution will aim to recoup around 10% of your monthly credit card sales until as payments for the loan.

The principal upside to merchant cash financing is the short time it takes to process your loan application and disperse the funds. You’ll find this financing option includes less paperwork, there are no collateral requirements, and you can receive the funds in as little as one week. The amount you pay every month is determined by your credit card purchases for the month, so there is no fixed repayment schedule.

High annual percentage interest rates and borrowing costs are among the main drawbacks to merchant cash advances. Funding times for these types of loans are fast, however, and the approval requirements are lax when compared with the funding options listed above.

Merchant cash advances offer a great tool for covering your expenses quickly after a financial shortfall. But keep in mind the repayment period is unfixed, and you’ll have to deal with reduced cash flows until you repay the original loan balance in full.

Small Business Administration loans

Small Business Administration (SBA) are similar to Federal Housing Authority (FHA) loans in the sense that they’re government back and insured financial instruments. Since the government guarantees the loans and they don’t hold all the risk, lenders are usually amenable to approving businesses with riskier credit profiles, or they may consider funding smaller businesses that lack an extensive professional track, as long as they have two years of seasoning.

SBA loans can be an effective funding solution for business owners with less-than-perfect credit or no credit history at all, but there are a few caveats to SBA loans worth mentioning.

The cost to take out an SBA loan is usually more competitive than the alternatives. The interest rates are low, and the repayment terms are longer than other business financing options. Unfortunately, the SBA loan application process is rather involved, and, again, the loan requires you to have been in business for at least two years.

When you apply for an SBA loan, you should expect several weeks to pass before the final approval. Under most circumstances, the SBA requires you to pledge at least some collateral in exchange for the funds.

Business grants

Business owners can also access several business grant programs. After doing a bit of legwork, you shouldn’t have too much trouble finding grant money to fund your business if the requirements.

Federal, state, and private agents are potential sources for business grant funds. The best part about grants is they’re not loans, and there’s no requirement to pay them back as long you fulfill the conditions of the grant.

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Invoice financing

We touched upon invoice financing in a prior section. But we didn’t want to leave it off the list. To reiterate, lenders grant funding to small businesses that demonstrate unpaid invoices sufficient enough to borrow against their receivables.

If you’re interested in pursuing invoice financing to fund your company, or any of the business financing options discussed above, consider partnering with New Bridge Merchant Capital.

We’re an alternative business financier offering smaller companies like yours fast and secure funding solutions that ensure you have enough working capital on hand to cover your operating expenses and drive organizational growth.

Get started with New Bridge Merchant Capital by submitting your details online. Or, to get a better idea of what you qualify for, connect with one of our senior business finance consultants by phone now by dialing 844-228-0593.

The SMB Merchant Cash Advance Guide

Merchant cash advance (MCA) companies in New Jersey are here to help when a business is running short on cash. The lender can deliver funds in a few days, and they often don’t have strict requirements like traditional loans. If you want to learn more about how a merchant cash advance can help your business, here is our complete guide to this funding source.

What Is a Merchant Cash Advance? (MCA Loan Meaning)

While a merchant cash dvance may seem like a loan, it is technically an advance payment against a business’s future income. The lender will provide the company with a lump sum payment. That funding will be automatically repaid by a set percentage of daily debit or credit card receipts, plus an additional fee. The lender will often look at the business’s credit card processing statements. With that information, the lender knows whether the borrower can repay the amount through the daily sales from the card statements.

In New Jersey, Merchant cash advances are a quick and easy way to secure funding for a business. With a fast approval process, no collateral is required, which can benefit many small businesses. Also, these merchant cash advances are another option for those without perfect credit. A merchant cash advance can be used for a variety of business uses.

The fees for an MCA are usually higher than other types of loans and are often based on the borrower’s ability to repay the borrowed amount per month. Lenders will establish the rates based on the business owner’s creditworthiness. If a business has a solid stream of debit or credit card payments, the lender will be more likely to charge a smaller fee.

Why Apply for a Merchant Cash Advance for Your Small Business?

A business owner can use a merchant cash advance in New Jersey for various uses. Some business owners want to balance their cash flow during certain seasons, while others need to fill a gap in funding. Whatever the need, many business owners will find that these cash advances are a very beneficial way to get more funding for their business. A merchant cash advance is an excellent option if you are:

Dealing with seasonal money issues
Looking to purchase new inventory or expand business operations
Needing temporary cash flow assistance
Meeting payroll expenses
Paying due debts
Requiring cash to pay for unplanned expenses or payments

How Does a Merchant Cash Advance Work?

A merchant cash advance is a good alternative for those businesses with a steady revenue stream from debit and credit card sales. The advance lump sum amount is based on the business’s financial health. As previously stated, the borrower will agree to pay the lender back with a percentage of the daily credit or debit card sales. That advance amount and fees are known as a factor.

For example, if a business has borrowed $20,000 with a factor rate of 1.50, the lender will collect $30,000 from the borrower, which is $20,000 times 1.35. In this case, the fee for this merchant cash advance is 50% of the borrowed amount.

Many times, the repayment periods will range from three to 12 months. Usually, higher credit card sales mean that the business owners will quickly pay off the borrowed amount.

Look at another example. A lender could deduct 10% of the monthly credit card sales until the borrower has repaid $30,000. If the daily revenue totaled $4,000, the daily repayment would be $400. The merchant cash advance lender will take out that amount every day until the advance is paid back. From the example above, if the average credit card repayments were $400 for each day, then it would take 75 days to repay the loan.

How Much Does a Merchant Cash Advance Loan Cost?

A traditional type of loan will have an interest rate, but a merchant cash advance is different. A merchant cash advance will have a factor rate ranging from 1.14 to 1.48. The factor rate is the percent the business owner will owe on the loan. Unlike a standard interest rate, the factor rate is expressed in decimals.

In many instances, the merchant cash advance will include set-up, processing, and payment fees, which could double the cost of the loan. Business owners will pay only when they withdraw funds. Over time, the business owner can repay the withdrawal amount and additional flat fees.

Many business owners want to know the actual costs of a merchant cash advance. These total costs will depend on a few factors, such as:

Amount advance: the lump sum of cash advance to the business
Factor rate: the multiplier used to determine the business owner’s payback amount
Administrative costs: the required fees for the merchant cash advance, including origination, administrative, and closing fees.

How to factor these terms into the total amount of the merchant cash advance? Business owners can use a simple equation that includes the amount for cash advance multiplied by the factor rate, which is usually 1.15 or 1.25 times, plus any administrative costs.

Applying for a Merchant Cash Advance – New Jersey

The process is fast and straightforward when it comes to applying for a merchant cash advance. Generally, there is not a complicated loan application that needs an endless amount of documentation. Many times, businesses can get a cash advance in a few days. These applications can be completed online. Some of the business documentation needed include:

Bank statements
Business tax returns
Credit and debit card processing statements
Credit score
Driver’s licenses or state ID cards
Voided business checks

A merchant cash advance could be an excellent solution to financing gaps for someone with a new business, low credit rating, or limited assets. The eligibility for a merchant cash advance will vary from lender to lender. For example, one lender might require the owner to maintain at least $2,000, while others may need $5,000 in monthly credit cash transactions. Also, some lenders might not lend money to you if the business has been in operation for less than six months, while others may need the company to be in business for over a year.

While there are no standard minimum requirements for these loans, some of the typical ones include the following:

Must have a minimum credit score of 500
Been in business for at least a year
Have an annual revenue of at least $50,000
Must have a consistent cash flow

These factors will play a role in determining whether a business qualifies for a merchant cash advance, but they are not the only requirements. Depending on the lender, they may consider many other factors for approval. Before applying for merchant cash advice, always understand the requirement stipulated for the funding.

Merchant Cash Advance Underwriting Guidelines

Overview of Underwriting Guidelines

Merchant cash advance underwriting guidelines are the criteria that lenders use to evaluate the creditworthiness and eligibility of a business for funding. These guidelines vary from lender to lender but generally cover key aspects such as credit requirements, time in business, revenue documentation, collateral requirements, industry restrictions, personal guarantees, outstanding debt, and other relevant factors.

By understanding these guidelines, you can better prepare your business and increase the likelihood of obtaining a merchant cash advance. Let’s explore some of the essential underwriting factors in more detail.

Credit Requirements

Merchant cash advance lenders typically consider the credit history of the business owner and the business itself. While a perfect credit score is not always required, a good credit standing can significantly improve your chances of approval. Lenders may review credit reports from major credit bureaus and consider factors such as credit utilization, payment history, and any derogatory marks.

Time in Business

Lenders also assess the duration for which a business has been operating. Typically, they prefer businesses that have been in operation for at least six months to a year. Longer time in business demonstrates stability and the ability to generate consistent revenue.

Revenue Documentation

One crucial aspect of merchant cash advance underwriting is revenue documentation. Lenders need to evaluate your business’s cash flow and revenue streams to determine the repayment capacity. They may request bank statements, credit card processing statements, and other financial documents to verify your business’s income.

It is essential to maintain accurate and up-to-date financial records to present a clear picture of your business’s revenue.

Collateral Requirements

Merchant cash advances are unsecured financing options, meaning they generally do not require collateral. Unlike traditional loans where assets serve as security, merchant cash advances are based on future sales. This makes them accessible to businesses that may not have significant assets to pledge.

Industry Restrictions

Certain industries may face restrictions or limitations when it comes to obtaining a merchant cash advance. Lenders may have specific guidelines or preferences regarding the industries they serve. For example, businesses in highly regulated industries or industries with inconsistent cash flow may face more scrutiny during the underwriting process.

Personal Guarantees

In some cases, lenders may require personal guarantees from business owners. A personal guarantee means that the business owner takes personal responsibility for repaying the merchant cash advance if the business is unable to fulfill the repayment obligations. Personal guarantees provide an additional layer of security for lenders and may be requested, especially for smaller businesses or startups.

Outstanding Debt

Lenders will also consider any existing outstanding debt obligations your business may have. They assess your ability to take on additional debt and manage the repayment of multiple financial obligations. It is essential to have a clear understanding of your current debt load and demonstrate your ability to manage it effectively.

Other Factors Considered in Underwriting

Apart from the factors mentioned above, lenders may consider additional factors during the underwriting process. These may include the industry’s overall health, market trends, the business’s sales history, and the use of funds. The evaluation process aims to assess the risk associated with providing the merchant cash advance and determine the appropriate terms and conditions.

How Underwriting Decisions Are Made

Underwriting decisions are made based on a holistic assessment of various factors and the lender’s specific underwriting guidelines. Lenders consider the information provided by the business owner, financial documents, credit history, and any additional supporting documents. They evaluate the risk associated with providing funding to the business and determine the terms, rates, and amount of the merchant cash advance.

It is important to note that different lenders may have varying underwriting criteria, so it’s always beneficial to explore multiple options and compare their offerings before making a decision.

What Are the Advantages of Merchant Cash Advances?

For many business owners, the fast approval, quick funding releases, and easy qualification requirements are some of the biggest advantages of a New Jersey merchant cash advance. However, before applying for this type of business financing, you should know the advantages and disadvantages of these funding options. While a merchant cash advance can be a tremendous financial lifeline, they do have a few drawbacks that every business owner should know. With that, business owners can have realistic expectations about what these funding sources can and cannot do for them.

Take a look at the pros of a merchant cash advance.

Fast Approval, Processing, and Funding

A merchant cash advance is an excellent alternative to traditional loans when a business owner needs fast funding. These advances are a quick way to get fast money into the hands of a business owner. In some cases, approval can happen in less than 24 hours, with the funds showing up in less than three days. Many lenders do not have to abide by the same intensive regulations as traditional lenders, allowing them to expedite the underwriting process.

Lenient Qualifications

Before a traditional loan application is approved, the business owner must have an excellent credit score. That is not the case with a merchant cash advance. These lenders are interested in credit card processing statements over credit scores. The lenders will know whether the owner can pay back the cash advance with these statements. As a result, young businesses, startups, and owners with credit score problems can access business financing. While a strong credit score is not a determining factor for approval, it can help lower the factor rate, reducing the total cost of the merchant cash advance.

Flexible Payment Terms

The payment schedule for a merchant cash advance is fluid. These payment terms can be beneficial for businesses going through a seasonal lull. A merchant cash advance will require only minimum payments. That flexibility is usually not offered by other types of loans, like short-term loans that require payment no matter the business’s current sales volume. Merchant cash lenders require a minimum monthly payment for a specific repayment period. Any business owner applying for the merchant cash advance will want to check the fine print of the terms and conditions of this funding option.

High Borrowing Limits

Merchant cash advances do provide businesses with a higher amount of spending power. These advances can range from $5,000 to $400,000. The amount will depend on sales, which means a higher borrowing limit with a significant revenue stream.

No Collateral Required

Many traditional loans will require the borrower to put a personal saving account, home, or other property on the line for the funds. With a merchant cash advance, there is no need for that. Some MCA lenders may require a personal guarantee, but generally, there is no need to use collateral to secure the loan.

Use for Any Business Needs

Business owners can use a merchant cash advance for almost any type of business expense. Cash advances are a great option for many businesses if the owner needs short-term funding for operating costs or must use the funds for emergency expenses.

While there are plenty of benefits with a merchant cash advance, this type of funding also has a few disadvantages.

Cannot Help Build Credit

Credit scores are not necessary for the application process. In some cases, the lenders will not even pull a credit score. As a result, a merchant cash advance cannot help to build a credit score, which could allow you to qualify for better loans in the future. These loans are costly in the long term, especially if a business owner wants to boost their credit history.

No Incentives for Prepayments

Most lenders will require you to pay interest and the loan amount in a specific time. The faster the repayment, the less interest on the borrowed amount. However, since the merchant cash advances use a factor rate, it is a fixed amount that the borrower must pay back. That means borrowers will have to pay the same amount no matter how quickly they pay it back.

Difficult To Budget

Merchant cash advances have a variance in cost that can make it hard to budget on a weekly or monthly basis. Typically, when sales increase, the business has additional revenue to reinvest in other aspects of the company. However, it is different with a merchant cash advance. Higher sales will mean more correlated expenses, which can be difficult for any budgeting plan.

Potential for High APRs

Businesses of all shapes and sizes can access this type of funding. Unfortunately, these cash advances can be expensive for a company with a weak financial history or poor credit score. Merchant cash advances can carry high APRs. These cash advances are risky for the lender, and some businesses can default on the advance. The lenders often need to compensate by charging a higher APR. Along with that, merchant cash advances can be impacted by the repayment speed. More sales mean higher payments and APR for the cash advance.

Alternatives To MCAs

While merchant cash advances are a good option for many businesses, there are a few alternatives.

A business line of credit will expand the working capital for everyday expenses or short-term projects. The line of credit does revolve, meaning the borrower will have access to the total amount after repaying the borrowed portion. Also, businesses will only pay interest on the funds used, not the entire line of credit.

Another type of funding to consider is called invoice factoring. With this, the business can sell the outstanding invoice for quick cash. While the company will only get some of the money owed, it can allow them access to fast funding.

Get Approved for a Merchant Cash Advance

We will work with you at New Bridge Merchant Capital to find suitable funding options for your business. Contact us if you need help selecting the right loan, merchant cash advance, or line of credit for your business.