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Intro To Credit Card Processing Loans
If you think you’ll have trouble qualifying for and paying back traditional 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 structure, however, is 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 and consistent cash flow. But as long as you have strong debit and credit card sales, you shouldn’t have much trouble accessing and paying back Credit Card Processing Loans.
In this guide, we’ll answer the following questions and more:
- What Are Credit Card Processing Loans?
- How Do Credit Card Processing Loans Work?
- What Are The Advantages of Credit Card Processing Loans?
- What Are The Disadvantages of Credit Card Processing Loans?
- How Do You Apply for Credit Card Processing Loans?
- What If I’m Declined For a Credit Card Processing Loan?
- Is a Merchant Cash Advance a Loan?
- What Happens If You Default On a Credit Card Processing Loan?
- What’s The Difference Between a Merchant Cash Advance And a Loan?
- How Much Does a Credit Card Processing Loan Cost?
- Are Credit Card Processing Loans Right for Your Business?
What Are Credit Card Processing Loans?
Credit Card Processing Loans 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.).
How Do Credit Card Processing Loans Work?
Instead of interest rates, Credit Card Processing Loans have factor rates. This determines your principal or the total amount you’d owe. You would also be assigned a percentage that determines how much of your sales will go towards your payments. 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 factor 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 in 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.
What Are The Advantages of Credit Card Processing Loans?
Compared to other business financing products, Credit Card Processing Loans are very 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, funding can be approved and distributed in less than 48 hours.
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. This repayment structure is particularly appropriate for seasonal businesses or businesses that experience occasional dips in revenue.
Lastly, have you ever approached a bank for business financing only to find that their smallest business loan is way more than you need? With Credit Card Processing Loans, the minimum borrowing amount is just $7,500. You can borrow the exact amount you’re looking for and skip the lengthy approval process associated with larger loans.
Since Credit Card Processing Loans tend to feature lower borrowing amounts, you don’t need collateral. But depending on your provider, you may have to sign a personal guarantee.
What Are The Disadvantages of Credit Card Processing Loans?
The accessibility of Credit Card Processing Loans comes with a cost. Compared to traditional business loans, Credit Card Processing Loans carry higher rates and fees. Why are Credit Card Processing Loans so expensive? Well, many borrowers have subpar credit, which increases the risk of repayment. Higher rates and fees offset the heightened risk.
The repayment structure and shorter terms of Credit Card Processing Loans can also cut into your cash flow. That’s why Credit Card Processing Loans are only recommended for businesses with high volumes of debit and credit card sales.
Additionally, since the cost is based on a factor rate, not a compounding interest rate, you won’t save any money by paying early.
- Get access to funds quickly
- Approval process is easy
- Less than perfect credit accepted
- Use for a variety of business purposes
- Higher rates & fees than with traditional loans
- May have to change merchant services provider
- Shorter repayment term may reduce cash flow
Credit Card Processing Loans Compared To Other Products
|Loan types||Max Amounts||Rates||Speed|
|Credit Card Processing Loans||$7.5k – $1m||Starting at 1.09||1-2 business days|
|SBA Loan||$50k-$10m||Starting at 5%||3-5 weeks|
|Business Term Loan||$10k to $5m||Starting at 5%||1-3 business days|
|Business Line of Credit||$10k to $250k||Starting at 8%||1-3 business days|
|Receivables/Invoice Factoring||$50k-$10m||Starting at 5.8%||1-2 weeks|
|Equipment Financing||Up to $5m per piece||Starting at 5%||3-10 business days|
|Revenue Based Business Loans||$10K – $5m||Starting at 9%||1-3 business days|
Who Qualifies For Credit Card Processing Loans?
Approved businesses generally met the following criteria:
How To Apply For Credit Card Processing Loans:
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:
Step 1: Consider Your Needs
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.
Step 2: Gather Your Documents
To apply, you will need the following documents and information:
- Driver’s license
- Voided business check
- Bank statements (3 Months)
- Credit card processing statements (3 Months)
Step 3: Fill Out Application
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.
Step 4: Speak to Representative
Once you apply, a representative will reach out to you to explain the repayment structure, rates, and terms of your available options. This will ensure that there are no surprises or hidden fees during repayment.
Step 5: Receive Approval
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.
What If I’m Declined For a Credit Card Processing Loan?
If you were declined for 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 cash flow and is easier to repay.
We may also be able to recommend a different tool for financing your 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 loans 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.
People Also Ask:
Is a Merchant Cash Advance a Loan?
Though you do receive a lump sum that you have to pay back, Credit Card Processing Loans technically aren’t “loans” at all. Instead, it’s categorized as a “cash advance.” You are selling a portion of an asset (revenue from debit and credit card sales). Hence, Credit Card Processing Loans will not show up as “debt” or a “liability” on your balance sheet.
What Happens If You Default On a Credit Card Processing Loan?
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 rates or terms to make it easier for you to pay off your remaining amount.
What’s the Difference Between a Merchant Cash Advance and a Loan?
The primary difference between Credit Card Processing Loans and traditional 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 business loan, you pay the same amount every month, regardless of how many sales you made.
However, Credit Card Processing Loans tend to carry higher rates and fees than traditional business loans. Thus, you’ll probably pay more in a month for the former than you would for the latter.
Are Credit Card Processing Loans the Same Thing as Invoice Factoring?
These two terms often get mixed up because yet another name for Credit Card Processing Loans 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 Credit Card Processing Loans, the company purchases a portion of your future debit and credit card sales.
How Much Do Business Loans on Credit Cards Sales Cost?
There’s one more main difference between a term loan and a credit card processing loan. While a term loan comes with interest, a business loan on credit card sales comes with a factor rate and a retrieval 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 retrieval 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 credit card processing loans.
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 retrieval 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 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.
Are Credit Card Processing Loans Right For Your Business?
Like any other business financing product, Credit Card Processing Loans are designed for specific scenarios and types of businesses. For instance, Credit Card Processing Loans will likely have the least impact on your cash flow if you make high volumes of debit and credit card sales. Then again, Credit Card Processing Loans could also be very advantageous for seasonal 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 Credit Card Processing Loans is accessibility. You don’t need excellent credit or many years in business to get approved. This is why Credit Card Processing Loans tend to carry higher rates and fees than other products. Thus, if you have excellent credit and strong business history, you may qualify for different products with lower rates and fees.
Can I Get a Credit Card Processing Loan with Bad Credit?
Yes, this product is available to borrowers with bad credit. Remember, your borrowing amount is based almost entirely on your monthly debit and credit card sales. And since the repayment structure of Credit Card Processing Loans is expensive by nature, borrowers are basically expected to have bad credit. However, your credit score will impact the product’s cost and terms. Thus, if you’re looking to access the lowest possible rates, consider our credit repair services before applying.