Have you decided to pursue financing for your business? What type of merchant funding are you interested in? Whatever it is, you should be aware of some important terms before applying for a business loan.
Knowing the essential terms, you’ll be able to make an informed decision about financing your business. Also, the process will prove to be much more comfortable for you. Here are several key business lending terms to know:
Business Credit Score
Business credit scores, also called commercial credit scores, vary from 0 to 100. These scores help your potential lender determine whether your business is worth lending money or not. Also, they help the lender decide what type of loan you can qualify for. Moreover, your business credit score plays an important role in determining the interest rates and terms of a loan.
The calculation of a business credit score is based on the information found in the business credit report. Business credit scoring companies use a specialized algorithm to take into consideration all the information available on your credit report. Then, your business is given a credit score.
Business Credit Report
Businesses credit reports are maintained by credit bureaus. They record information about your business’s financial history.
Business Line of Credit
A line of credit allows you to have access to working capital when your business needs it. Unlike a small business loan, a line of credit will charge you only the interest on the funds you use.
Business Term Loan
A term loan is a lump sum of cash you pay back alongside with interest over 1 – 5 years. Business term loans are ideal for established businesses, which usually use them to improve capital, purchase equipment, and expand their business.
Collateral is any asset that you pledge as security for a loan.
This is financing designed explicitly for equipment. It can vary based on your industry, business, and credit score.
The FICO score was created by the Fair Isaac Corporation. From here, you have its name. This is the most popular type of credit score that potential lenders use to determine whether they should enter a contract with you and your business or not.
Fixed Interest Rate
This is the interest rate on a loan that is set in the beginning and doesn’t undergo changes for the lifetime of the loan.
Floating Interest Rate
The floating interest rate, also known as a variable rate or adjustable rate, can undergo changes with market fluctuations.
The income statement is one of the most important parts of your business loan application. It’s also called a profit and loss statement. The income statement is an accounting scorecard featuring the financial performance of your business. It’s comprised of your business’s net income, revenue, and expenses for a specific period (quarterly or annually).
The interest rate is a percentage of the principal amount that the lender will charge for the use of its money.
Merchant Cash Advance
A merchant cash advance (MCA) isn’t a loan: it’s simply a sale based on your business’ monthly sales volume. You’ll be required to repay the amount with a percentage of the daily or weekly sales. An MCA is ideal for those who need quick access to working capital.
Only, it’s too important to find a reputable merchant funding provider to apply for a cash advance. FirstAmericanMerchant.com, an award-winning alternative online lender and processor, offers its popular cash advance with highly affordable rates and without challenges. First American Merchant (FAM) specializes in the high risk industry and has helped thousands od hard-to-approve merchants get all they need for their business.
Microloans are provided by nonprofit, community-based organizations. They typically feature amounts under $50.000.
When a lender requires some form of security when lending you money, this is called a secured loan.
A term loan provides your business with a lump sum of cash upfront. Only, you’ll be obliged to repay the principal and interest at specified intervals over a certain period of time.
This is a type of loan that isn’t backed by collateral.
When applying for merchant funding, don’t forget to learn the essential lending terms. This will help you make the best funding choice for your business.