A merchant funding is a non-traditional loan that uses future credit card earnings as collateral. The lender basically provides up-front, quick capital in exchange for a portion of the business’ credit card sales or daily bank deposits. The lender receives a portion of the sales as payment on a monthly basis until the entire debt amount is paid.
Even during times of normal operation, an infusion of cash can help optimize operations, expand the business, or ensure that employees are paid on time. Of course, there are a number of alternatives to merchant fundings that may suit a particular business. Read on to know the top 3 reasons why a merchant funding is a perfect option for a business like yours.
No need for collateral or credit
Merchant fundings do not need collateral because they depend on future sales. This is the reason why most lenders will not ask for credit reports and why your ability to repay a merchant funding will not affect your credit ratings.
Fast application and approval
There are many instances when a business needs a quick infusion of cash right away. Whether it’s to take advantage of a time-sensitive expansion opportunity or to meet cash flow needs, merchant fundings can come to the rescue because they can be approved in a matter of days. The process is straightforward. The lender usually evaluates your tax returns and financial statements, as well as reviews your current business plans. The lender will look at the length of time the business has been in operation and the monthly returns on your credit cards. You have a good chance of having your application approved right away if your credit card sales consistently go over $5,000.
Collections based on revenue
Unlike traditional loans that you have to pay whether or not you are meeting your target sales, merchant funding repayments are collected based on your revenue. Repayments are only done when the company has sufficient cash flow coming in.
Due to the fact the merchant fundings do not need collateral, they often come with shorter terms and the cost of an advance is often more than a standard bank loan. In most cases, the borrower has a year to 18 months to pay back the loan. It is important to determine if a merchant funding can give you the solution you need or if another type of loan can do the job for you. One way is to look at the urgency with which you need a quick loan. If there is an urgent need for fast funding and you have the cash flow to pay the loan back, then a merchant funding could be the solution you are looking for.
Ali Mayar is the CEO of Platinum Rapid Funding Group, one of the leading alternative lending companies catering to small and medium-sized businesses. Get more insights on merchant funding and how they can be beneficial for businesses by visiting alihabibmayar.com. You can also follow Ali Habib Mayar for business and entrepreneurship updates on Facebook and Twitter.