Lithuania’s Borderless SME Financing Platform Debitum Explains how Merchant Cash Advances Help Businesses

The team at Lithuania-based financing platform Debitum notes that raising funds for SMEs can be quite a challenging and stressful experience.

Until only recently, the choice had been between the different types of loans provided mainly by traditional banking institutions, which involve tedious application processes and many anxious days of waiting for a response, Debitum noted in their latest blog post.

The company pointed out that an alternative source of funding has become quite popular and it’s called Merchant Cash Advances (MCA). As explained by Debitum, these had first entered the market during the mid-90s and have become quite popular during the past few years.

Debitum clarified that MCA’s aren’t actually loans in the “proper sense.” However, they are a form of capital investment “in return for a percentage share of future generated credit or debit card sales, usually recouped on a daily or weekly basis.”

The company also noted that Debitum partner – Loan originator Cubefunder has “a proven track record in offering MCAs.”

While explaining how these products work, Debitum noted that the process of applying for a MCA is “just as rigorous as applying for a traditional loan.” They also mentioned that  Cubefunder “asks applicants to show the … last 90 days of business transactions.” There’s “no need for those overly complicated business plans,” Debitum wrote in its blog post.

The company added:

“Unlike banks, Cubefunder, and other MCA providers, focus on sales and revenue. The process usually takes two days to complete including running a credit check on the business. The efficiency of the process benefits both the MCA provider and the potential loan customer.”

While commenting on what an MCA may be used for, the company noted:

“Cubefunder has a very open approach to all applicants. The MCA can be used for almost any business related activity, including unexpected bills, refurbishment, salaries, replenishing stock etc. Unlike many other loan and MCA providers, Cubefunder will accept applications from businesses that have been operational for less than a year but with at least three months trading activity, businesses that might not have a high credit rating, which can also be due to being a relatively new company, or those previously rejected by a bank.”

Going on to comment on how much this may cost, Debitum explained that while a traditional bank loan typically has a standard publicized annual interest rate (APR), MCAs come with individual rates along with the basic cost of the advance (loan).

Debitum further noted that by taking the MCA concept into the non-retail SME sector, they have seen that Cubefunder has been able to use the MCA principle of “paying more when cashflow is strong and less when it is weaker.” Cubefunder “uses its proprietary software system to price each loan individually with a fixed cost of credit and a pre-agreed tailor-made repayment plan designed to suit the business’s cash flow variances,” Debitum added.

While explaining how and when are repayments are made, the Debitum said that unlike the conventional loan with a repayment schedule, Cubefunder loans “take repayments based on sales.”

Debitum further noted that the repayments are “usually taken each day or on a weekly basis, and are linked to the business bank accounts the borrower uses.” The repayment scheme is “very easy – from every sale an agreed percentage goes to lender’s account … Repayments are therefore stress and hassle free,” the company claims.

Debitum also clarified:

“Cubefunder does not impose penalty fees on early repayment and their loans carry a fixed cost of credit, therefore, no additional interest is paid on the loan. Even if there is a missed daily payment, once the amount due within the period agreed is paid, there are no additional costs.”

Although MCA style business loans may end up costing considerably more than conventional loans, they are viewed as more practical “in terms of the efficiency of the application process, and once approved, funds are ready to use in a matter of hours.” The borrower “does not need to have collateral to secure the loan and for businesses with limited assets, this can be a major benefit,” the company clarified.

Debitum also mentioned that MCAs may be attractive for investors, especially in the short term, and Cubefunder has “a proven track record as a successful and diligent loan originator.” At present, investors may get “a 10% return with Cubefunder compared to the average 8.5% with other loan originators on the Debitum platform.”

Debitum added:

“Reviews of Cubefunder and its quality of service are positive. Its clients praise its quick and efficient service and that everything is clearly explained.”

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