The Most Hilarious Complaints We've Heard About small business funding
Owning a sole proprietorship has both its advantages and disadvantages. As the exclusive owner of a business, a sole proprietor has the authority to make any and all decisions regarding the business; from the type of business to open, to the location of the business, to the name of the business, and any other decisions that may need to be made.
But being a sole business owner also puts the business owner personally at risk. In addition to receiving all of the profits of the business, a sole proprietor also receives all of the losses and assumes all of the risks of the business, which according to the Canada Revenue Agency, even extends to the owner's personal assets, as a sole proprietor does not have separate legal status from his/her business.
These facts make applying for a business loan a very risky undertaking for a sole proprietor, considering that if the business fails, its owner may be responsible for loan repayment, and his/her own personal property may be seized.
Acquiring business financing through a merchant cash advance virtually eliminates this problem. A merchant cash advance is a great option for a sole proprietor who does not want to put extra strain on his/her personal assets. This is because, even though the business and its owner may not have a separate legal status, merchant cash advance lenders have found a way to make only the business responsible for the loan payback.
You may wonder, "How can they do this?" It's simple, instead of requiring a business owner to make payments on a loan, merchant cash advance lenders rely on the credit card purchases processed by the business to make payments on the loan. Still don't understand, consider this example:
Sarah is the sole proprietor for Sarah's Cookie Shop. She has seen an unexpected rise in sales, and is finding it difficult to keep up with the demand of her customers. She realizes that she can solve her problem by making larger batches at a time. But unfortunately, she does not have the equipment to support the batch increase. She decides to invest in an industrial oven and food mixer, but after pricing the items, she is about $10,000 short. She does not want to take out a bank loan because she is unwilling to put up her personal assets as collateral.
Sarah decides to get a merchant cash advance. After she completes an application, submits the requested documentation and is approved, $10,000 is funded into her bank account. During the process, the merchant cash advance lender informed Sarah that based on her previous month's credit card sales, and the amount of the loan she would receive, only 20% of her future credit card sales would be deducted as repayment for her merchant cash advance. Now, every time customers make credit card purchases at Sarah's Cookie Shop, a small percentage of the sale is deducted and put towards the repayment of her merchant cash advance. Whether Sarah processes $5,000 in credit card sales on a given day, or $500, only 20% of her credit card sales go toward repayment, causing her loan payments to adjust to how well business is going.
Sarah did not have to put up any collateral, and feels secure, knowing that her personal property is safe. And with the additional increase in sales that Sarah's Cookie Shop has seen since Sarah's equipment purchases, her merchant cash advance is being repaid faster than she expected.
If you own a sole proprietorship, you too can find funding for your business without worrying about the security of your property. A merchant cash advance can provide anywhere from $5,000 to $500,000 in funds for the advancement of your sole proprietorship.
Many businesses opt to acquire a merchant cash advance. Merchant advances are based on the credit card activity of a business. The advance provider will grant businesses immediate funds for exchange of a return and interest. Commonly, there is no exact time limit or quantity of payments; the repayment is mostly akin to the receiver's business volume.
Small to mid-sized businesses are good candidates for receiving a business cash advance because they may not have an established relationship with a bank that can provide them with sufficient funds sought. Many times, a smaller business may desire equipment, manpower, or other utilities that can advance their size and revenue, but the unfortunate instance of their size or age may deter lenders from granting monetary provisions.
Merchant cash advance providers are aware of the legal aspects of their industry, but it is also wise for those seeking their services to gain a better understanding of this aspect as well. To begin, the receiver must determine whether the provider is treating the interaction as a sale or a loan. If the interaction is treated as sale, then the receiver must be aware that their debt can be sold to another party. Alternatively, the cash advance provider must be aware that a sale structure may mean the recipient's business may slow down or close; these risks are not present in a loan situation.
If the account cash advance is considered a sale of particular financial assets, it can be assumed there are no set payback periods, no minimum payments, and no additional fees. However, whether or not the advance is a loan or sale is contingent on the intent and actions of the provider and receiver. How the merchant loan provider treats the interaction will be the court's focus should its presence be warranted.
If the advance is to be structured as a loan, the provider needs to be licensed as a lender in states requiring unsecured commercial lenders to be so. Most states do not require a license for unsecured commercial loans and many states do not set a maximum interest rate for unsecured commercial loans.
In addition to interest rates, collection behaviors of the merchant advance provider may become an issue. Many states regulate commercial collection activities. Collection practices also become relevant in determining whether the transaction is ultimately a sale or a loan in a court of law.
The federal government and most states host laws prohibiting unfair and deceptive tactics that may be exercised by providers known as business working capital UDAP laws. Cash advance providers need to market their product in an accurate fashion clearly describing the receiver's obligations.