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Disadvantages of a Traditional SBA Loan
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Many companies find that they have to acquire loans from time to time in order to finance their daily operations or future expansions of their businesses. Small businesses usually have a hard time in securing loans from traditional lending institutions like commercial and investment banks. This is because they usually require collateral or security for the loans.

Obtaining a Small Business Loan

When you are ready to apply for financing, you should come up with an effective business plan. The business plan is an effective tool that will determine whether the banker will consider lending to you or not. Professional business plans usually improve the chances of getting financing, and the business may need to engage the services of a professional business plan writer.

The contents of the business plan should be well planned, clear, and detailed and should not leave room for doubts in the lender’s mind. The contents should include the name of the business, physical location, addresses and contacts of the management, educational qualification, and experience of the management team. The business plan should outline the nature of your business, its strengths and opportunities for growth in the market, the company’s marketing strategy and the competition it is facing. It should also provide for how the money requested will be used in the business, give provisions for money raising from other sources and outline methods that will be used for loan repayment. It is important to give the security for the loans, as this will give an assurance to the lender that you are willing to repay for the loan.

When searching for financing, you should select lenders that are in your line of business or those that support your kind of business. Other financial statements may be required including receipts and debts that the company has accumulated in a given period, its assets and liabilities.

Some of the sources of getting small business loans include commercial banks, credit unions, consumer finance companies, small business investment companies, commercial finance companies, and private lenders.

Disadvantages of a Small Business Loan

While, SBA loans may be the first option that small business owners look into, it also has many disadvantages when compared to other borrowing options. Businesses who borrow loans backed by the SBA may have to pay slightly higher interest rates during repayment. Although the SBA has set up the maximum interest rates chargeable by a lender to small business loans borrowers, this does not imply that all lenders charge the same interest. Some lenders charge slightly higher rates for loans backed by the SBA.

Businesses may also have to go through additional requirements before they can be granted a small business loan. Many financial lenders take lending to a small business to be risky investments, and may include additional requirements than those used by commercial banks when financing small businesses. In addition, some applications, which are backed by SBA, might take longer to be approved than loans in commercial banks, making the small business wait a considerably long time. This wasted time may lead to critical business losses or missed lucrative opportunities by small businesses.

Alternatives to Traditional Small Business Loans

Some financial investors have come up with products that cater to the needs of small businesses that are not qualified to borrow from commercial banks, and are also locked out from financing through the SBA-backed loans. One of these companies is MerchantCreditAdvance. At MerchantCreditAdvance, we offer alternatives to the traditional small business loans. We offer cash advances to small business owners through credit card factoring.

Credit card factoring is a method where a company can be provided with cash advances by considering its future credit sales paid through credit cards. In this method, the owner of a small business sells a fixed amount of money of future sales paid through debit or credit cards at a discounted rate to MerchantCreditAdvance. In return, the company offers a cash advance to be used for necessary items in the business. As the business picks up and expands, a percentage of sales made through debit or credit cards are transferred automatically to MerchantCreditAdvance until all the cash that was advanced is repaid.

Credit card factoring is very helpful to companies that may find themselves short of cash as they await the processing of credit and debit card sales by merchant banks. It enables the companies to have some working capital during lean times, or take advantage of new ventures that may come their way. In addition, its repayment method is very flexible because companies repay according to the sales they make; there is no fixed or minimum payment as with the traditional SBA loans. Due to the automatic nature of our repayment method, small business owners can rest assured that they won’t have to deal with making monthly payments and stressing about late fees. Thus, a company can clear its borrowed cash advance in months rather than years as is the case with small business loans.

Credit card factoring from MerchantCreditAdvance may be the best available financing option for businesses that find themselves locked out in commercial bank loans or the traditional funding of SBA loans.

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