How to Get a Merchant Cash Advance for Startups
When a company is just starting out, it generally has limited financing options. Traditional banks often won’t give newer companies a second look, since businesses with a limited operating history are riskier from a lender’s perspective. In that case, a merchant cash advance might seem like a good choice, since it doesn’t typically require good credit. However, a true startup won’t yet have reliable incoming sales to sell to a financing company. In most cases, startup businesses have their best shot at good financing through alternative sources of capital, such as Seek Business Capital.
How Does It Work?
What Are the Rates?
Am I Eligible?
How Much Can I Get?
What Documents Do I Need?
What Are the Terms?
Companies like Seek Business Capital aim to hook up newer or startup businesses with the capital they need to operate and grow. One of the benefits of using this type of specialty financing company is that it can provide business consultants that understand your financing needs and can offer you more flexible solutions. Although a merchant cash advance may not be possible, speaking with a company like Seek Business Capital is a good first step towards understanding the options you may have available.
The reality of being a startup company is that you’re likely going to face higher interest rates no matter which type of financing you secure. That’s not a personal judgment of your company or your business model, it’s just how the dollars and sense of the risk-reward calculation break down. Without a proven ability to earn profits and pay off your debts, it’s harder for lenders to offer you the best available rates.
This doesn’t mean that there’s no hope for your startup company to obtain decent financing, however. Working with alternative financing sources like Seek Business Capital can open up various forms of specialty loans, including a 0% introductory APR on many loans, with a variable rate thereafter.
Beyond the difficulty in getting good interest rates as a startup, it can often be hard to qualify for any loan at all. Most lenders, especially traditional banks, are interested in rising cash flow, profitability and a long operating history before they’ll issue any loans. Thus, startups are behind the eight ball from the start, as those financial characteristics are typically in short supply.
Eligibility for a loan isn’t entirely based on operating history, however. Think about it this way — every company you do business with yourself started from somewhere and no doubt got some funding along the way. Although your path as a startup may be harder, with the right documentation you can likely find a willing lender.
What can help with your quest for funding as a startup is to have a clearly written business plan. A merchant cash advance is usually not an option since your cash flow has yet to begin, but if you can chart out a reasonable path for future profits, you can often work with an alternative funding source to get your needed capital. Once you’ve got your initial funding in place and your business is operational, then you can consider the next step, merchant cash advance.
Of course, a projected plan on paper may still not be enough to qualify you for your first business loan. Especially if you are a sole proprietor, your personal credit history will also likely come into play. Your personal credit history can demonstrate to potential lenders your ability to pay back debts in the past. While that may not be a perfect indicator for the debt-paying ability of your business, it’s an added data point that can only help since your loan application is likely to be thin without it. The higher you can raise your credit score before you apply, the more it will help your cause, so try to clean up your credit report before you go searching for business financing.
One of the advantages of working with a specialized finance company is that they tailor their business to startups and newer companies. A company like Seek Business Capital understands the financial situation you’re likely to be in as a startup and can work around your financial history. However, even with these types of companies, the stronger your finances and credit, the more likely you are to qualify.
In some ways, not being able to qualify for a merchant cash advance as a startup may be a good thing. If you can instead qualify for a general business loan, you’ll have the capital you need to build your business and use as you see fit without having to worry about the cash flow reduction that goes with a merchant cash advance.
With Seek Business Capital, for example, you may qualify for a loan of up to $500,000. Generally, initial loans are funded at a much lower level, but the loan amount you can get will be based on the application you present to your potential lenders. The stronger your financial and credit profile, the more you can qualify for. Remember though that you should never overextend yourself by looking for a loan larger than you will need.
To get any type of financing for your business, you’ll need to provide documentation. As a startup, you won’t have the type of comprehensive financial records that long-established companies may be able to produce, such as years of financial statements and tax returns. However, the more you can provide at this stage, the better. Some of the documents you should have ready for your potential lenders include:
- Your Social Security number so lenders can run a personal credit check
- The business plan for your startup, with details as to how your loan will translate into future growth and profitability
- Your intended use of the loan proceeds
Remember that the types of lenders you’ll be dealing with at this stage won’t be large, traditional banks, so you may have to provide additional documentation or collateral. You can speak with lenders before you file an application so you can better anticipate what you might need to provide in your loan application.
If you run into a few roadblocks along the way, don’t be deterred. There are a number of businesses that cater to startups, and you may find that the path to a loan through one of these alternative sources of finance is easier than you imagine.
Although it can be harder to qualify for startup financing, these types of loans are actually some of the most flexible. Specialized lenders understand that cash flow can be irregular for startups, so sometimes loans can have flexible payback schedules. Longer-term loans carry more risk for lenders, however, so you should anticipate that your startup loan should be shorter-term in nature. If you can successfully pay back your initial startup loan, you can likely qualify for better loan terms with subsequent financing.