Monthly Archives: March 2019

Accounts Receivable Factoring Vs. Merchant Cash Advances: How Things Stack Up

Of the most popular alternatives to traditional loans, accounts receivable factoring and merchant cash advances top the list. In order to give business owners a better idea of how the two stack up, we put together a side-by-side comparison according to the features entrepreneurs look for the most in financing solutions.

  1. Debt-Free Financing

Merchant Cash Advance: An advance in funding with no debt on the balance sheet.
Accounts Receivable Factoring: Cash for receivables with no debt on the books

Advantage: Equal

 

  1. Interest and Fees

Merchant Cash Advance: High interest and additional fees baked into the agreement.
Accounts Receivable Financing: No interest or additional fees. The amount of financing is structured around the creditworthiness of your customers.

Advantage: Accounts Receivable Factoring

 

  1. Repayment

Merchant Cash Advance: Balance is repaid from a percentage of sales with a large balance remaining at the end of the terms.
Accounts Receivable Factoring: There is no repayment. Factoring is an instantaneous transaction with no need for terms or contracts.

Advantage: Accounts Receivable Factoring

 

  1. Funding Limits

Merchant Cash Advance: Single-use and based on average monthly revenue.
Accounts Receivable Factoring: No upper limits. Businesses can choose which invoices or parts of invoices are funded, and factoring is reusable for as long as your business issues invoices.

Advantage: Accounts Receivable Factoring

 

  1. Versatility

Merchant Cash Advance: Typically used for short-term growth or working capital.
Accounts Receivable Factoring: Accounts receivable factoring can be used to correct cash flow issues, build up cash reserves, growth and working capital, making payroll, paying down existing liabilities, purchasing inventory and materials, advertising, and anything else your business needs.

Advantage: Accounts Receivable Factoring

 

  1. Agency and Control

Merchant Cash Advance: Borrowers are subject to the interest, fees, and terms of the agreement.
Accounts Receivable Factoring: Businesses have a complete say in how much of their receivables get funded. As there are no fees or contracts, businesses can create their own factoring strategies tailored to their needs and goals.

Advantage: Accounts Receivable Factoring

 

New Century Financial is a national leader in accounts receivable factoring solutions. We provide comprehensive factoring strategies to help businesses thrive and achieve long-term success. Contact our team today to learn more about how New Century Financial can improve your cash flow and help your business accumulate the capital it needs for growth.

Debt-Free Growth Capital? A Better Alternative to MCAs

Traditional loans are not the be all end all of business financing. With funding limits, debt, and arbitrary interest rate hikes, many businesses are seeking out alternative solutions to the traditional loan model. When it comes to growth capital, merchant cash advances seem like an attractive alternative to bank loans, but there are a few things you should know before you apply for that MCA.

How MCAs Impact Businesses

Merchant cash advances, or MCAs, are offered as an alternative to traditional loans. Businesses use MCAs to roll out growth projects quickly without being limited by the red tape of traditional lending methods. MCAs do not place debt on the books and do not require any collateral. As such, MCAs have much higher interest rates and additional fees to ensure the lender makes a profit from a business that is equal to or more than the cost of a traditional loan. MCAs are also advertised as having flexible payment methods. Since there are no fixed payments, MCAs are repaid electronically from a percentage of your customers’ credit card transactions. At the end of the agreement, if the balance, interest, and fees are not repaid, businesses can expect a large balloon payment due to the lender. A merchant cash advance can have a boomerang effect that ends up placing a big strain on finances after growth is achieved, leaving businesses with very few options.

A Better Alternative for Growth Capital

When loans are not in the picture and MCAs offer more risk than return, business owners turn to accounts receivable factoring for growth capital. Factoring allows businesses to turn unpaid receivable to cash within 24 hours, instead of waiting a month or longer to customers to settle their accounts. In addition to improving cash flow, accounts receivable factoring allows businesses to quickly accumulate the capital necessary so they can act on growth opportunities. Accounts receivable factoring is debt-free, and does not have any of the additional fees and covenants of a merchant cash advance. There are no payment schedules, and businesses can choose which invoices or parts of invoices get funded. Accounts receivable factoring is used by businesses of all types as a fast, direct, affordable, and transparent method of building up capital reserves for growth.

New Century Financial specializes in accounts receivable factoring solutions for businesses. If you are trying to position your business for growth, and want a smart and viable financing solution, contact New Century Financial today.

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Merchant Cash Loans: Short-Term Solutions with Long-Term Headaches

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Many businesses use merchant cash loans or merchant cash advances as a means of sidestepping the debt and fixed payments of traditional loans. However, the devil is in the details, and a merchant cash loan can easily place a major strain on cash flow and can potentially threaten to turn business finances upside down.

How Merchant Cash Loans Really Work

Merchant cash loans are frequently advertised as an infusion of capital without debt and lots of flexibility. The balance is repaid from a percentage of sales instead of fixed payments, giving businesses more financial leeway. The reality of merchant cash loans is that, while they may not place any debt on the balance sheet, merchant cash loans have other strings attached. Because they are sold as “a debt-free cash infusion” on the front end, merchant loans come with very high interest rates as well as hidden fees. While the repayment method seems flexible, the interest and fees result in an extremely large balloon payment at the end of the term agreement. A business would have to more than double its revenue for the full terms of the merchant cash loan in order to make any headway on the balance owed. This can place businesses in a financially precarious position.

Removing Your Merchant Cash Loan Headache

If you have used a merchant cash loan and are now burdened with a large balance due to your lender, there is still a viable solution. Accounts receivable factoring can help to quickly pay down the balance before the interest and fees flip your business finances. Accounts receivable factoring converts unpaid invoices to cash within 24 hours, so you can access the funds you need to maintain regular business operations and eliminate the balance owed on a merchant cash loan. Accounts receivable factoring is truly debt-free, completely transparent, and with no hidden or additional fees. While many businesses use accounts receivable factoring to boost their cash flow, others use factoring to quickly get rid of the looming balances from merchant cash loans and other so-called “flexible financing methods.”

New Century Financial specializes in accounts receivable factoring solutions. If you own a business and are trying to get out from under a merchant cash loan, or you simply want to supercharge your cash flow, contact our offices today.