The Payment Protection Program (PPP) is set to end on May 31, 2021. Congress approved funding for the Paycheck Protection Program of $284.5 billion as part of a broader package of relief measures. Under the new bill, PPP loans are now available to broader range of enterprises and industries. Further, businesses that experience a loss of revenue of 25% or more over the previous year and meet additional requirements are
eligible for a second PPP loan.
According to the most recent information, any business that fulfills the SBA’s size
requirements may be eligible for a First Draw PPP Loan. Second Draw PPP loans are
only available to enterprises who have already received and used their First Draw loan,
as well as:
● Have a maximum of 300 staff.
● Can show a decline in gross receipts of at least 25% between comparable quarters in 2019 and 2020
You are likely eligible for a First Draw loan if you haven’t applied before. However, the
eligibility requirements for a Second Draw loan are more stringent.
Despite this, there are countless small businesses in the US, so an all-encompassing
lending program will not operate for them all. You must find another source of funding
if you are not able to obtain a PPP loan or are rejected for any reason.
If you are a small-business owner in need of cash, a merchant cash advance might be a
viable choice. This article will focus on why PPP loans are no longer being accepted, and
MCA may be the right choice for you. So let’s dive in.
The PPP loan program is open to all small businesses, nonprofits, veterans groups, tribal
concerns, sole proprietorships, self-employed people, and independent contractors with
500 or fewer employees. Some industries have various SBA-set size standards that allow
them to be classified as small companies.
Furthermore, your company must be up and running by February 15, 2020. If you
established your firm in late February or early March, you would lack the requisite
payroll history to demonstrate the “average monthly payroll” number needed to
consider loan requests.
Other circumstances may cause the SBA to rule that your company is ineligible for a PPP
loan. The following are examples of these scenarios:
● You are conducting illegal business under federal, state, or local law.
● In the recent five years, a business owner who owns 20% or more of the company
has been incarcerated, on probation, paroled, indicted, or convicted of a felony.
● You or other business owners have defaulted on a guaranteed loan from the SBA
or another government agency within the last seven years.
Apart from that, if your application is full of mistakes, your PPP loan is denied.
Moreover, banks are having trouble using the SBA portal due to backdated technologies.
Lenders are in shortage of capital, etc. is why PPP loans become a hassle for small
business wonders.
Why MCA Will Be Your Right Choice?
Usually, a merchant cash advance (MCA) involves the borrower receiving a lump sum
payment in exchange for remitting daily or weekly credit or card sales. The low
eligibility requirements for MCAs make them a viable option for PPP loans.
Because of this, many nonprofit lenders and consumer advocates consider MCAs as a
last-resort funding option. Here are key benefits of MCA that have made it one of the
best options rather than PPP loans:
Auto-Payments Are Made
Payments are automatically deducted from your business’s received credit transactions
when you send a merchant cash advance. This means you won’t have to take time out of
your day to make the payments, and you’ll have a far lower possibility of incurring late
fees.
If you have a habit of forgetting to pay your bills, knowing that your cash advance
remittance is handled for you can be reassuring.
Payment Based On Your Business’s Daily or Weekly Credit Card Sales
The remittance structure is one of the most appealing aspects of receiving a merchant
cash advance. A classic term loan requires a company to make a specified payment
regardless of whether or not its customers have paid their invoices.
This might place a hardship on a company that has slow-paying customers or a changing
cash flow. However, as previously stated, a percentage of your business’s credit card
sales is used to pay your commitment with a merchant cash advance. As a result, if you
have a slow sales month, you will not be charged as much as during peak seasons.
Receiving Funds Is Quick
The process of obtaining a company loan from a bank might take weeks or months to
complete. If your company requires immediate working capital, you can’t afford to go
through a lengthy financing process only to find out that you don’t qualify for a loan.
Funds can typically be accessible in less than a week with a merchant cash advance, and
many lenders can close deals in less than 72 hours.
No Further Collateral Is Necessary
Even if your company has assets, you may not be able or willing to put them up as
collateral for a business loan. Lenders usually simply want a fraction of your business’s
projected sales receipts as security for a merchant cash advance. As a result, all other
corporate assets remain open for use as needed.
How Does MCA Work?
Businesses that rely heavily on credit and debit cards, such as restaurants and retail
stores, are typically eligible for merchant cash advances. In addition to credit card and
debit card transactions, firms that primarily operate in cash can now receive merchant
cash advances.
To repay a merchant cash advance, two options exist. One option is to receive a payment
upfront in exchange for a percentage of future sales from credit and debit cards, or to
receive a payment upfront that is repaid via ACH, which is a daily or weekly transfer
from your bank account.
You can make regular payments within a defined repayment period or until you have
fully repaid the advance without having to wait for an advance payment from your bank.
Your fee amount will depend on how quickly you can repay the merchant cash advance.
Factor rates are generally determined by merchant cash advance providers according to
their risk assessment. Factor rates typically range from 1.2 to 1.5. If you have a high
factor rate, then you will pay a higher fee. By multiplying the cash advance amount by
the factor rate, you can calculate your final repayment amount.
How To Apply For MCA?
Depending on the documentation and other conditions, getting accepted for a merchant
cash advance could take anywhere from a few hours to a few days. A business could have
funds in its account within two days after the process is approved.
Because the application process isn’t as demanding as a regular loan, merchant cash
advances are usually approved quickly. However, the following are the measures that a
company must take:
Submit An Application For Funding
The application will typically be one to two pages long, and you will be asked for your
social security number, business tax ID, and other pertinent business information.
Provide Documentation
You’ll very certainly be requested to provide many months’ worth of credit card
transactions as well as bank statements. In addition, you will very certainly be asked to
submit evidence of citizenship and a copy of the company location’s lease.
Obtain Approval
Your firm could be authorized for a merchant cash advance in as little as 24 hours.
Create a Credit Card Processing System
This form of funding may necessitate switching to a different credit card processor.
Switching processors is inconvenient, but it is an essential element of the approval
process for many MCA providers.
Completion of All Details
To utilize the prior example, the funding specifics might be as follows: a small firm is
approved for $10,000 with a $13,000 repayment need. Every day, 15% of the merchant
account will be deducted until the total $13,000 is repaid.
Get Your Fund
The money from the MCA will be transferred into the small business’s bank account,
and repayment will commence automatically through the merchant account.
To Wrap Up
Merchant cash advances are a viable alternative to typical bank loans for small
businesses. They’re convenient for organizations that get credit card payments regularly.
In addition, applying for a cash advance may be advantageous if you’re willing to give up
a share of your future credit card receipts.
Make sure you understand all rules and fees before pursuing this financing option and
don’t be afraid to ask questions. Then, after you’ve gathered all of the data, you can
assess if your company would benefit from a merchant cash advance.