Merchant financing has gained popularity over the past years as a worthy financial option for small businesses. Whenever a businessperson intends to seek such funding, several considerations must apply. You need to evaluate whether you need merchant financing. Here is a detailed description of when merchant financing is suitable for your business.
When you Expect High Sales
One of the requirements of merchant financing is having high sales. Remember, merchant financing companies would only agree to your applications if you can prove high sales in the future since they rely on your sales in the loan repayment process. Well, it is not a guarantee that you will make high sales, but employing proper marketing techniques would help in your quest. You can consider aspects such as up-selling your products, remaining honest with your transactions, and learning from your previous encounters.
If You Have a Bad Credit Score
Having a bad credit score can significantly affect your business. Banks and other financial institutions rely on the credit score that one has when determining whether to offer a loan or not. Since merchant financing relies on your business sales, you can easily manage to get funding without worrying about your credit score.
You probably think that improving your credit score might help you get a bank loan rather than seeking a merchant financing. However, the process of improving your credit score is quite tedious and might take more time than you think. Therefore, resolving merchant financing would be the best solution for your needs.
If You Need Fast Financing
Once again, getting a bank loan is quite tedious. It requires a lot of paperwork, thorough scrutiny, and a slow approval process. However, since merchant advance credit is easy to access without a hassle, you can quickly get business financing compared with a bank loan. In a typical process of getting a bank loan, you need to show the purpose of the loan, prove your experience, provide personal information, and provide collateral.
On the other hand, you can get merchant financing through a hassle-free procedure such as online. Also, you do not have to give a lot of details, which significantly reduces the time that you will take in pursuing financing.
When You Do Not Want to Put Any Collateral at Stake
Typical lenders such as financial institutions use a loan-to-value approach when deciding on the worth of your loan. Therefore, you must disclose your wealth or properties for the institutions to determine whether you are worth getting the loan. Most institutions usually consider collateral, such as real estate, equipment, and accounts receivables. Such types of collateral are risky to put forward since they might end up losing them if you default the repayment.
However, it is different from a merchant credit advance since it does not require any form of collateral to guarantee your capacity to repay the loan. All you need to prove is your ability to make a high sale to acquire the loan.
When You are After a Hassle-free Financing Option
You need a lot of considerations to meet the requirements for bank financing. Such a form of funding requires a lot of time, which is contrary to the needs at hand. Most merchant credit advances are meant to help a business in short-term strategies such as inventory, maintaining an operating cost, and maintaining general cash flow. Therefore, the only quick and hassle-free option for your business financing would be a merchant credit advance.
If You Do Not Require a Set Amount for Your Payment
A merchant cash advance is not a loan. You do not have to repay a specific amount of money monthly or within the agreed timeline. In this case, you will accept a lump sum of money in exchange for a portion of your future sales through credit cards.
Technically, you will not be borrowing money, but you will be selling part of your future profit. Therefore, you will not be obligated to repay a specific amount of money according to the bank terms, especially when your business sales are low. In such situations, you only need to remit a smaller amount that reflects the rate of your profits.
Merchant Financing Might be Your Best Option
Every business requires some business financing to keep it running. Unfortunately, bank loans cannot manage to help you with your short-term needs hence the need to consider merchant financing. Before you decide on this type of funding, you have to ensure that most of your transactions are done through credit cards since the creditors rely on them in their repayment process.