Is a Credit Card Advance the Right Alternative to a Business Loan?
If my business needed money, the first thing I would do is go to the bank for a business loan. I’m sure that almost anyone would do the same thing; unless of course you have wealthy relatives who don’t mind loaning you money. But what happens when you go to the bank for a loan and they turn you down? What if your business is in jeopardy and you need that money or risk losing your business? I don’t mean to sound overly dramatic but it is something that thousands of business owners face each month. OK, maybe a business opportunity came up, or you are getting behind in your bills or just want to upgrade or expand your location. Whatever your reasons for wanting the money; being turned down by the bank leaves you with few options and could have serious consequences on your business. If you have been in this position before, maybe you have heard of a business loan alternative called a credit card advance or merchant loan. If you haven’t; they are a fast and easy alternative to bank loans that do not require good credit or collateral. You may be asking at this point; “what’s the catch?” I assure you there is no catch. But with all of the advantages that a merchant loan offers, there is one caveat; the cost of a credit card advance is more expensive than a bank loan. Like I said; my first choice for funding would come from a bank, but I would certainly consider getting a merchant cash advance if I felt that I could benefit from the cash. The money being offered is from private investors (called factors) and there is a great deal of risk involved with offering cash advances; especially in this economy. Because they do not accept any form of collateral; they would have no recourse if I were unable to pay them back. This is one of the reasons there is a higher premium on the money. What is the difference between a bank loan and a merchant cash advance? Perhaps the biggest difference is that they don’t actually loan you the money. They purchase a portion of your future credit card sales at a discounted rate. While that may just seem like semantics; it makes a very big difference. Because they purchase a portion of your future Visa/MasterCard sales; you also pay it back with your Visa/MasterCard sales. This is done automatically through your credit card processor by taking a small percentage of your daily transactions to pay back the advance. They do not touch your cash sales. One of the benefits of this type of payment structure is that if your business is slow that day; you will end up paying back less.
This is referred to as a flexible payback structure. It goes with the natural flow of your business, taking some of the stress out of paying back the cash advance. How do you get funded of the banks have already turned you down? There are two major factors banks look at when determining a loan; your credit history, and your assets to be used as collateral. The main determinant for a cash advance is your proven sales history. They look at the past 4-6 months of your businesses credit card sales and offer you an advance based upon those numbers. A general rule is 2.5 times your monthly Visa/MasterCard sales. For example: If your monthly credit card sales are $10K; you would be eligible for $25K. There is one thing that you need to ask yourself before applying for this type of funding; “will this money benefit my business” If so; you might be happy to know that they would never give you more money than you could comfortably pay back. Nobody wants to see your business suffer, least of all the people who you owe money to. You owe it to yourself as a business owner to stay informed and to keep all of your options open. I advise you to use the link below to learn more about how a merchant loan can help your business. For more information about merchant loans, go to http://merchant-loans.net