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Bizfi: How its MCAs and Business Loans Stack Up

Small Business, Small Business Loans
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After starting as a provider of merchant cash advances, Bizfi now primarily acts as a marketplace for small-business financing.

Known as Merchant Cash & Capital until rebranding in 2015, the company still offers its own cash-advance product to borrowers, as well as more traditional small-business loans.

Since the company was founded in 2005, it has originated or connected small-business owners with more than $2 billion in loans.

How Bizfi works

As a marketplace platform

  • Financing options: Various types, including short-term financing, equipment loans and Small Business Administration loans
  • Loan amounts: $3,000 to $1 million, depending on product type
  • Cost of funds: Varies, depending on creditworthiness and product type
  • Repayment term: Up to 10 years, depending on product type

Bizfi has partnerships with 45 lenders, according to John Donovan, the company’s CEO. Since it launched its marketplace platform, a majority of Bizfi’s financing to small-business owners has come from third-party partners, according to the company.

To get funding, small-business owners fill out an application on Bizfi that includes self-reported sales, revenues and financials.

BizFi then provides small businesses with financing offers — some of which they are prequalified for — based on their needs and creditworthiness.

“It might be an SBA loan, it might be a line of credit, it might be a merchant cash advance,” Donovan says.

As a direct lender of MCAs

  • Average cash advance size: $40,000
  • Cost of funds: Factoring rates from 116% to 133%, or 1.16 to 1.33, and a 2.5% origination fee
  • Speed: A few days
  • Repayment term: Fixed daily payments

Currently, Bizfi’s proprietary funding options are short-term, advance products, though Donovan says that as the company grows, it would be open to long-term products.

MCAs come with notoriously high rates of up to 350%. But sometimes, Donovan says, speed can beat price.

“Say a local hardware store wants to buy 1,000 grills and needs to come up with $100,000,” he says. “It doesn’t matter if someone can give $80,000 at a lower rate.” For the business owner, Donovan adds, it’s the dollar amount first, followed by how quickly he can get the money, then terms and conditions.

Most MCAs use a factoring rate to determine the cost of financing. Bizfi is no exception. It has a factoring rate of 116% to 133%, or 1.16 to 1.33, so, if you borrow $50,000 at a rate of 120%, or 1.2, you’ll end up paying back $60,000.

A fixed percentage of your business’s revenue would be withdrawn through daily Automated Clearing House transfers until the full amount is repaid, which could leave borrowers struggling with the debt if the business falls on hard times. However, you can adjust the payment every two weeks based on sales, according to Bizfi.

How to qualify: You need to be in business at least six months and have average monthly revenue of $15,000 to $20,000, depending on your industry.

Bizfi does not have a minimum FICO score requirement, meaning it could be an option for business owners with bad credit. However, to get a complete understanding of the business and whether the owner will be able to repay the advance, a Bizfi underwriter contacts each merchant during the application process.

Industries served: Bizfi’s short-term financing product is popular with restaurants, retail stores, and health and business services, and the funds are typically used for working capital and inventory needs, Donovan says.

Bizfi loans vs. other small-business loans

Speed and ease of financing are two benefits of a Bizfi MCA, but like most MCAs, the cost and frequency of repayment could be drawbacks.

The annual percentage rate represents the true cost of borrowing and is a number you can use to make apple-to-apple comparisons among financing options.

On the Bizfi platform, options range from low-cost SBA loans to MCA companies that use factoring rates that exceed 150%. To find out the APR and total costs of your MCA, check out NerdWallet’s MCA calculator.

In contrast, banks normally offer loans with APRs less than 10%, but you need to meet stringent requirements, such as having collateral or strong personal credit. The application and underwriting process typically takes several weeks or even a few months.

Most online alternative lenders offer APRs between 7% and 99%, depending on creditworthiness and other factors. Many online lenders could be alternatives to MCAs since they also can offer fast funding.

Want to compare more small-business loan options?

NerdWallet has created a comparison tool for the best small-business loans to meet your needs and goals. We gauged lender trustworthiness and user experience, among other factors, and arranged lenders by categories that include your revenue and how long you’ve been in business, so that you know which loans you qualify for.

Jackie Zimmermann is a staff writer at NerdWallet, a personal finance website. Email: jzimmermann@nerdwallet.com. Twitter: @jackie_zm.