If you’re the type of business owner that thinks you’ll have trouble qualifying for and paying back traditional small business loans, Credit Card Processing Loans might be the right product for your needs. Like a traditional loan, you’ll receive a lump sum. The repayment terms, however, are very different. Your ability to repay depends on your debit and credit card sales.
Does your business alternate between busy and slow periods? This can make it challenging to grow your business with a traditional business loan. Your cash flow might not be able to withstand fixed monthly payments when business slows down. These products also require excellent personal credit, business credit, and consistent cash flow. But as long as you have strong debit and credit card transactions, you shouldn’t have much trouble accessing and paying back short term business loans on future credit card sales.
Loans against credit card processing transactions are sometimes referred to as a “Merchant Cash Advance” or a “Business Loans Against Credit Card Sales.” You would receive a lump sum based on the revenue you are projected to generate from debit and credit card sales throughout a given period. Payments would automatically be deducted from debit and credit card sales whenever you batch out your transactions (daily, weekly, etc.).
So how do you turn your credit card transactions into working capital with flexible terms? Instead of interest rates, loans on credit card processing sales have factor rates. This determines your principal or the total you’d owe. You would also be assigned a holdback percentage that determines how much of your daily credit card sales will go towards each payment. This percentage and your factor rate are based on your perceived ability to repay.
It’s important to note that factor rates are not the same as interest rates. Factor rates typically range from 1.09 to 1.5. So, if you were advanced $10,000 with a rate of 1.4, you would owe $14,000 in total.
Since payments are deducted from sales, the size of your payment depends on your sales volume. So, if you have a slow month, your payment amounts would be smaller. This would not have to be followed by a more substantial payment the next month, nor would it increase your principle. However, you do have to pay back the total amount within a specific period.
You also have two options for the method by which payments are deducted. First, you could have payments deducted as a fixed percentage of daily sales. Second, you could have the company deduct a fixed percentage of your daily bank account deposits. This method is known as ACH, or Automated Clearing House payments.
Compared to other capital financing options, credit card processing loans are quick and easy to qualify for. You can get approved with less than perfect credit history, less than one year in business, and even rocky cash flow. Thanks to these loose requirements, lenders can approve and distribute the capital in less than 48 hours, now that’s fast!
Second, since payments fluctuate with sales volume, you won’t have to make large payments when sales are down. The percentage of sales that gets deducted never changes. For this reason, you’ll only have to pay what you can afford at the time. These repayment terms are particularly appropriate for seasonal businesses or the many small businesses that experience occasional revenue dips.
Lastly, have you ever approached lenders for business financing only to find that their smallest business loan is way more than you need? With loans against future credit and debit card sales, the minimum borrowing amount is just $7,500. A business owner can borrow the exact amount they’re looking for and skip the lengthy approval process associated with a larger amount of credit.
Since merchant account loans tend to feature lower borrowing amounts, you don’t need collateral. But depending on lenders, you may have to sign a personal guarantee.
The quick accessibility of card processing loans comes with a cost. Compared to traditional bank financing options, a merchant cash advance carries higher borrowing costs. Why are merchant cash advances so expensive? Well, many business owners have subpar credit, which increases the risk of repayment. Higher costs of capital offset the heightened risk.
The repayment structure and shorter terms of merchant account loans can also cut into your operating capital. That’s why merchant cash advances are only recommended for small business owners with high volumes of debit and credit card transactions.
Additionally, since the cost is based on factor rates, not a compounding interest rate, you won’t save any money by paying early.
| LOAN TYPES | MAX AMOUNTS | RATES | SPEED |
|---|---|---|---|
| Merchant Cash Advances | $5k – $1m | Starting at 1-6% p/mo | 1-2 business days |
| SBA Loan | $50k-$5.5m | Starting at Prime + 2.75% | 8-12 weeks |
| Business Term Loan | $10k to $5m | Starting at 1-4% p/mo | 1-3 business days |
| Business Line of Credit | $1k to $1m | Starting at 1% p/mo | 1-3 business days |
| Receivables/Invoice Financing | $10k-$10m | Starting at 1% p/mo | 1-2 weeks |
| Equipment Financing | Up to $5m per piece | Starting at 3.5% (SBA) | 3-10+ business days |
| Revenue Based Business Loans | $5K – $1m | Starting at 1-6% p/mo | 1-2 business days |
If you have the required information on-hand, the entire application process takes just a few minutes. Funds can appear in your bank account in under 48 hours. Here’s how to get started:
Before you begin the application process, take some time to make sure this is the right product for your individual needs. Will you be able to use the funds for your desired purpose? Will you do more good than harm to your cash flow? Do you know exactly how much funding to request? Answering these questions ahead of time will make the rest of this process much, much smoother.
To get started, you will need the following documents and information:
You can begin the application process by calling us or filling out our one-page online application. At this stage, you’ll be asked to enter the information from the previous section along with your desired funding amount.
Once you apply, a representative will reach out to you for a free one on one consultation on the repayment structure and terms of your available options. This will ensure excellent service and that there are no surprises or hidden fees during repayment.
If you’ve been approved, you’ll hear back from us within 24 hours. Funds should then appear in your bank account in 1-2 business days.
If you were declined a credit card processing loan, it might be because your cash flow cannot withstand the repayment structure. In this case, we may be able to recommend another product that puts less pressure on your operating capital and is easier to repay.
We may also be able to recommend a different tool for financing your small business. Possible examples include business credit cards or personal loans, both of which can be obtained through UCS. These tools are often easier to access than business funding but can perform similar functions.
If you were declined for poor credit, consider our credit repair services as well. We can help you boost your credit score by eliminating the issues keeping your score down.
Though you do receive a lump sum that you have to pay back, merchant cash advances technically aren’t “loans” at all. Instead, they’re categorized as a “cash advance.” You are selling a portion of an asset (revenue from debit and credit card transactions). Hence, a merchant cash advance will not show up as “debt” or a “liability” on your balance sheet.
If you believe you won’t be able to pay off the total amount by your due date, contact us immediately. There are many possible solutions to explore before resorting to extreme measures. Most business financing companies will do everything in their power to prevent borrowers from defaulting. We may alter your terms to make it easier for you to pay off your remaining amount.
The primary difference between merchant cash advances and traditional small business loans is the repayment structure. Instead of fixed, monthly payments, the size of your payments depends on your sales volume. And you can make payments whenever you batch out your transactions (daily, monthly, etc.). With a traditional small business loan, you pay the same amount every month, regardless of how many sales you made.
However, a merchant cash advance tends to carry higher borrowing costs than traditional business loans. Thus, you’ll probably pay more in a month for the former than you would for the latter.
These two terms often get mixed up because yet another name for merchant cash advances is “Credit Card Factoring.” Yes, both options technically involve obtaining financing based on your sales. But with Invoice Factoring, a company literally purchases your accounts receivables. You don’t owe any money. With merchant account loans, the company purchases a portion of your future debit and credit card revenues.
There’s one more main difference between a term loan and a merchant cash advance. While a term loan comes with interest, a business loan on credit card sales comes with a factor rate and a holdback rate. The factor rate works a lot like interest. It’s the percentage on top of your original loan that you’ll pay to your lender. Your factor rate multiplied by your original loan amount = the ultimate cost of your funding. The holdback rate is the percentage that goes back to your lender until you pay off the entire balance.
For example, let’s say that you have a $50,000 merchant cash advance.
If you have a factor rate of 1.15%, then your ultimate cost is $57,500. That is, this is the amount that you will pay your lender once you’ve paid off your entire funding amount.
$50,000 x 1.15 = $57,500.
Your holdback rate is the percentage of your credit and debit card sales that your lender will receive until you’ve paid off the full amount. For example, let’s say that you make $2,000 in credit card and debit sales on a given day. If your retrieval rate is 10%, then your lender will receive $200 that day.
$2,000 x 0.10 = $200.
Once you know your funding amount, your factor rate, and your retrieval rate, you can easily calculate your costs.
Like any other business financing product, financing on card processing transactions is designed for specific scenarios and types of small businesses. For instance, merchant cash advances will likely have the least impact on your operating capital if you make high volumes of debit and credit card transactions. Then again, merchant cash advances could also be very advantageous for seasonal small businesses. You could make investments during your slow season to prepare for the busy season. Since payments fluctuate with sales, you wouldn’t have to pay off most of the debt until sales start to pick up.
One of the most significant advantages of merchant cash advances is accessibility. You don’t need excellent credit or many years in business to get approved. This is why a merchant cash advance carries higher costs and fees than other products. Thus, if you have excellent credit and strong business history, you may qualify for different products with lower fees and borrowing costs.
Yes, this product is available to borrowers with bad credit. Remember, your borrowing amount is based almost entirely on your monthly card sales. And since the repayment structure of a merchant cash advance is expensive by nature, borrowers are basically expected to have poor credit. However, your credit score will impact the product’s cost and terms. Thus, if you’re looking to access the lowest possible borrowing costs and fees, consider our credit repair services before applying.
