Many people who own businesses have heard of lenders that offer the opportunity to borrow against potential upcoming credit card sales through merchant credit card accounts. This is known as loans against credit card sales. This system allows businesses to have working capital that can be used to build up higher sales volumes. Although it is an interesting way to acquire capital quickly, loans against credit card sales are a more expensive way of borrowing. However, it is a much easier type of financing to get, making it very interesting for businesses who have credit issues or who need money quickly. It is incredibly important to think long and hard before entering this type of lending agreement and it is advised that businesses seek a professional opinion first. One term that generally describes this type of lending is “receivable factoring”. This better explains what the process involves, as it shows that it means an advance against likely receivables, as opposed to the creation of debt. It is very important to know the difference between receivable factoring and a conventional business loan.
There are a number of lenders who offer loans against credit card sales. Some, for example, will offer 30% of the average credit card turnover a business has each month, which has to be repaid within half a year. Usually, the costs will range between 6.5% and 7.5% every month. The average credit card sales do need to be over $4,000 every month in order to be eligible for this loan. Usually, credit card statements over the past three months need to be provided. Other lenders offer loans against credit card sales up to a set amount, such as $250,000. Other lenders also set a minimum lending amount, usually around $5,000. Often, businesses need to have been operating for a minimum period of time, usually six months to a year, before being able to apply for this type of financing. Very often, lenders only work with organizations that are in a certain line of business, such as retail or restaurants. Sometimes, lenders offer higher advances, even up to $400,000 but these will have tighter acceptance criteria, such as having been in business longer and having higher average credit card sales over a longer period of time. They will also offer higher percentages of average monthly credit card sales, sometimes even up to 100% or – in rare occasions – 150%. These lenders will generally allow for a slightly longer repayment time (usually nine months to 1 year, rather than six months).
If you are considering loans against credit card sales, it is important to really learn more about what it is and whether it is the best solution for your business. The reality is that in these difficult financial times, even those businesses that have a very good financial history and highly consistent profits are still turned down by banks for financing. This means that traditional loans, such as a small business loan, are simply not an option for many people. The more traditional forms of business loans include small business loans, equipment loans, secured and unsecured business loans, working capital loans and line of credit. Because of the terrible financial situation we face in today’s market, many businesses don’t even take the time to apply for any of these types of loans, because it is so likely that they will be denied their application. A business cash advance can be a good solution. Loans against credit card sales are different because there is no need to draft a full business plan or to provide lengthy financial and tax records. There is no need to present a lender with collateral. This type of loan is available for all businesses, including those with credit that is not entirely squeaky clean. Cash flow is protected because the monthly payments aren’t fixed. These types of loans also offer high degrees of flexibility, meaning that a business can choose how to use the money themselves. This type of credit will also not show up on a credit report, which means that future finances will not be negatively affected. The application is generally quick and easy, with most businesses approved for funding within 24 hours.
It is important, however, to not be swayed by the terminology used by the lenders offering loans against credit card sales. They will often state things such as repayments to be made through small fixed percentages, for example. As a business, you do need to check exactly how “small” this percentage is.
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