Additional Position Cash Advances
While merchant cash advances are far from the cheapest form of business financing, they can be crucial for companies without sufficient credit and cash-flow for traditional financing, or for companies that need fast business financing, and don’t have the luxury of going through a months long process of obtaining traditional business loans through a bank. After obtaining a business cash advance, a company may find themselves with additional financing needs before the 1st merchant cash advance is paid-off. In those instances, a small business may feel the need to secure a 2nd cash advance. Or, if the company meets certain requirements, have a lender buy-out the initial cash advance, and provide new financing that would allow the borrower to make a repayment to a single lender.
|What We Offer|
|1st Position Advances|
|2nd Position Advances|
|3rd Position Advances|
|4th Position Advances|
|Cash Advance Refinance|
|Cash Advance Consolidation|
What is a Merchant Cash Advance?
A merchant cash advance is a type of “unsecured business financing” where a company sells future business sales to a funder for an upfront amount cash. Repayments of a merchant advance are made daily through ACH payments made through a company’s banking account, or by remitting a percentage of each day’s credit card transactions (or, in a process called split payments, a lender can do a combination of bank and credit card remittances). Merchant cash advance lenders have very high approval rates, sometimes as high as 95%, as merchant cash advances are cash-flow driven, not credit-driven. In fact, many cash advance funding companies have no credit requirements at all. The application process is relatively simple as a minimal amount of business documents are needed, and funding takes a matter of days, as opposed to months with traditional financing. But since these lenders are willing to take increased risk, their rates are much higher than you’d see with traditional business financing. In fact, a factor rate can be as high a 1.55%.
What is a Factor Rate?
A factor rate is the way that “interest” is calculated using a merchant cash advance. I lender will provide terms that state the funding amount multiplied by a factor rate. The factor rate is a ratio, and the portion above 1.0 represents the interest. So if a company gets a cash advance for $100,000, and has a factor rate of 1.20, the borrower will be paying back $100,000 multiplied by 1.20, thus: paying-back $120,000. Since a factor rate isn’t an interest rate, the borrower will end up paying-back the full amount owed, regardless if they payback early (although some merchant cash lenders will provide savings if paid back early — which is usually laid-out before the contracts are executed and the company is funded).
How Do You Get a Merchant Cash Advance?
There are hundreds of merchant cash advance financing companies in the United States. Once you have found the best merchant cash advance lender to work with, you will need to submit a credit application, bank statements and credit card statements (if your company processes credit cards). The funder will analyze a company’s deposits in their bank and/or credit card processing statements, along with running a credit check on the business, and decide what amount of financing they’d feel comfortable forwarding to the small business. Once a funding amount is determined, the lender will then send the business a contract laying-out the rates and terms of the financing agreement. After the contracts are signed, and further stipulations are met, the lender will then look to verify that the merchant’s accounts are real and that the bank statements provided during the approval process were accurately provided. If determined that all information is accurate, the lender will then deposit the money directly into the company’s business accounts.
What is a UCC-1 Lien Filing?
Uniform Commercial Code-1 (or more commonly called a UCC-1 financing statement) is a way a lender gives legal notice that they have interest in a small business or SME’s commercial property, and protects the lender’s interest should the borrower fail to repay the loan. When a creditor files a UCC-1 financing statement against the company’s assets, they are establishing themselves as first in-line to collect should the company fail to payback their loan. Once the UCC-1 lien is filed with the Secretarty of State where the small business is located, the creditor has “perfected” the UCC-1 lien, and they then have priority over any additional lenders that file UCC liens after them. The term of a UCC-1 lien is usually five years, and needs to be renewed by the creditor after 5 years should the term extend beyond that term. It is up to the small business to have the lien on their company removed once the loan is paid-in-full.
How Does a Previous UCC Affect Getting Another Advance?
If a company has a previous lien placed on their business by a merchant cash advance lender, they may have a tough time securing additional financing. To get financed, they’ll need to find a lender willing to take another “position“. By position, it means a lender that is willing to file a UCC-1 lien knowing that their claim on the business assets (should the borrower default) would be subordinate to the previous lender’s claim. This new lender would have to take a 2nd positions merchant cash advance lien against the business. This isn’t unusual, in fact, there are lenders willing to make 3rd position merchant cash advance loans, or even 4th and 5th positions. But the key is knowing which lenders offer 2nd, 3rd, 4th or 5th position business cash advances, and finding the best possible terms associated. Since these lenders are putting themselves in a position to be left without anything to collect if the borrower defaults, the rates for higher position business loan stacking are much higher than a first position cash advance. On top of that, the term associated with a second position cash advance are almost always shorter than the first position advance.
2nd Position Business Cash Advance Options
Ideally, the best option to is not take-out a 2nd position short-term business loan, but instead obtain more traditional financing like bank loans, or SBA financing to refinance their business debt. If they are unable to get more traditional financing and are looking for another advance, we’d recommend the borrower find a cash advance company willing to buy-out, consolidate and/or refinance advances, and allow the company to make a payment to a single lender. Turning to a 2nd position business advance lender should be a last resort.