Karen Mills, the departing Small Business Administration chief, recently spoke at the the third Capital Access Innovation Summit and addressed continuing problems with the way the SBA provided funding to small firms. Since 2009, they have been working to making funding easier to obtain for entrepreneurs, and while Mills touted some improvements, she lamented the difficulties still facing those seeking small business loans. According to Mills, “…we still need to be filling gaps in the market.” She then specifically addressed the types of smaller loans commonly used by small businesses, saying that “loans under $150,000—those are absolutely critical if we’re going to get the startup community back generating the kind of jobs that it needs to really fuel the economy.”
Given a lack of traditional small business loans available to borrowers, one would assume that firms would have sought out other available forms of small business financing. However, a recent case study undertaken by Principis Capital has revealed an unfortunate lack of knowledge about loan alternatives among small business owners. The study gauged familiarity with a common loan alternative known as a merchant cash advance. Out of a total 50 small business owners polled, 54% were not familiar with how a merchant cash advance worked and a full 38% had never even heard the term before.
Merchant cash advances differ from traditional small business loans in several important ways. First, they do not represent a credit obligation; there is no collateral and no liens against the business or the owner. A merchant cash advance is simply a purchase of a fixed amount of future credit card receipts. Instead of making fixed monthly payments, the merchant remits a set percentage of their credit batching until the full amount purchased has been remitted. This has made merchant cash advances a popular option with seasonal businesses, businesses with inconsistent monthly traffic and businesses with prior credit issues.
Nick Del Deo, VP of Sales at Principis Capital, noted, “There is an entire ecosystem of financing options available to merchants outside of the traditional small business loans offered by banks. This study just goes to show the importance of promoting financial literacy and education within the small business community. I see a strong relationship between high level of unfamiliarity with loan alternatives and the sustained failure rate of American small businesses.
Principis Capital is an established leader in providing small businesses the working capital they need, regardless of credit history. Currently serving thousands of businesses in the United States, merchant cash advances from Principis Capital enable merchants in all industries to quickly meet unexpected financial needs, make renovations and/or expansions, and take advantage of new business opportunities for growth. Principis prides itself on helping all merchants, including those who have bad credit, or who have been previously turned down by a bank.