Back to Blog Feed

We will help you grow your small business.

Learn More

Join our Newsletter for great tips and updates.

There are times when your business needs cash immediately. Like now. Not in 30 days. NOW.

If this is you, you know there are myriad financing plans for making this happen. Micro-loans,accounts receivables factoringcrowdfunding, etc. If your company uses debit and credit cards, you have another option: credit card factoring a.k.a. merchant cash advance.

A merchant cash advance or merchant funding, is a very common practice used today. Retail stores, restaurants, or any business using debit or credit cards to collect money can use this for a short-term cash infusion.

The process is similar to accounts receivables factoring in that you’re taking an advance against future collections. The funding agent gives you the asked-for lump sum and is repaid by taking a small percentage of your daily credit card sales until the advance is paid back. In short, you’re borrowing against your future profits.

THIS TYPE OF FUNDING HAS A LOT GOING FOR IT:

It doesn’t require collateral.

It has a high approval rate.

The payment amount ebbs and flows with your sales.

It doesn’t accrue bank debt.

Most importantly, it’s fast. In many cases, you can have your needed cash within a few days as opposed to the 30-90 days common with traditional business loans. There isn’t a credit check, there are no elaborate paperwork, there’s no specific monthly amount, and no specific monthly payment dates. It can definitely help with “NOW.”

If you’re a new business, a business still establishing good credit, or a business with marginal credit, credit card factoring can be a good fit. Any business over a year old with an average $10,000 in monthly credit card sales can apply for it. If your business is healthy, revenue is steady, and continual growth is projected, credit card factoring can be a perfect solution.

THERE IS ANOTHER SIDE TO THE SCALE

Credit card factoring isn’t a traditional business loan. This gives it a few quirks you should know about before signing on the dotted line. Here are a few cons to be aware of:

  • They aren’t regulated, secured or protected in any way and yet, they are a legal document. You will be legally bound to the terms and conditions.
  • If your business fails, you’ll still be required to repay the balance of the funding.
  • They don’t have set end dates. You could be paying the advance back indefinitely depending on the funding amount, your sales, and the terms of the contract.
  • There isn’t officially interest, but the fees associated with credit card factoring are somewhat higher than other financing choices because they require little paperwork and are unsecured for the most part.
  • There will be an agreed upon percentage of money subtracted from your credit card sales on a daily basis until the balance is repaid. You won’t know what the day’s payment is until the business day closes and you tally up your credit card receipts. If sales are slow, you could be repaying the advance for a longer time than anticipated.

By using credit card factoring/merchant cash advances, you are betting on your business’ future success. This deserves careful consideration.

The good news is, like many other forms of financing, credit card factoring is evolving. There are hybrid versions, more lenders to work through, and a wider array of terms and conditions. If this is the option for you, it’s possible to find a contract that capitalizes on the pros and diminishes the cons.

As with any lending situation, it’s important to research your options, run your numbers, and consult with experts. This is especially true with credit card factoring. Being clear on fees, the daily percentage being deducted from your sales, your obligation should your business fail, etc., is a must.

The immediate need for cash happens to every business at some point. Don’t let the “NOW!” echoing through your head cloud your decision-making. Go forward carefully and thoughtfully. Credit card factoring is a viable option – and a good one. Be sure you fully understand its in’s and out’s before incorporating it into your business.

Interested in learning more about credit card factoring? Need help understanding its nuances? United Capital Source can help! We specialize in helping companies of all sizes that don’t necessarily fit into traditional business lending models. Reach our experts at 855-933-8638 or use the Live Chat feature on our website (www.UnitedCapitalSource.com)

We will help you grow
your small business.

Get Started