Especially in the early years, money is tight for small businesses. When their owners want to grow their firms, buy extra inventory, hire personnel, or fund a marketing campaign, they often need to borrow the money. Accessing financing can is tough when a business is small and new, and it can seem impossible if its owners also have poor credit.
In 2016, 45% of small businesses applied for some type of financing, according to the 2016 Small Business Credit Survey, released by the Federal Reserve. Of those applicants, only 40% received the full amount they requested.
Bad credit, which is often referred to as a poor FICO credit score of below 640, makes access to financing even more challenging. Since getting a loan from a traditional bank is an uphill battle, small businesses often due better seeking financing, such merchant loans bad credit, from alternative lenders. These loans are good short-term funding options for small businesses because eligibility requirements aren’t as strict, they don’t require collateral, and payments fluctuate with the amount of revenue you bring in each month.
Understanding Merchant Loans
Unlike traditional loans that are paid back in fixed amounts made on an agreed upon schedule, such as once per month, a merchant loan is an advanced payment that is leveraged against the future credit cards sales of your business.
When your business is approved for a merchant loan, the lender issues a lump-sum payment based on your average credit card transactions. The amount you were advanced and the fees for the loan are automatically withdrawn using a percentage of your daily credit card sales. The beauty of a merchant loan for a small business is that it gives the business owner more flexibility. The amount you pay back each month is based on how much you made in credit card transactions that month. Therefore, when your transaction volumes are low, your repayment amounts are smaller. Flexible funding, like this, allows you to better manage your cash flow.
Why Merchant Loans Are Attractive to Poor Credit Businesses?
Traditional loans require applicants to submit credit ratings, collateral tax records, and other documents. When you apply for a merchant loan, often you only need to submit bank statements and past credit card statements, and you don’t need to have any collateral. In most cases, you can still qualify if you have a credit rating of below 600.
Merchant loans, which also are known as merchant cash advances, also get approved within a few days, while traditional loans can take two to three months to process.
Is a Merchant Loan Right for You?
If banks have turned you down for financing and you have short-term cash flow problems, then this type of loan is a good choice for you. Oftentimes, this type of financing usually has a term that caps out at 18 months. If you that takes in a high volume of transactions each month, A merchant cash advance also is a good option for you if you take in a high volume of transactions each month.
Get a Merchant Loan to Finance Your Business
Anytime you borrow money you need to look at your specific needs, goals, and risk before you apply for a loan. Check out what options are available to you and really research the pros and cons of each one. In the end, if you are a small business with bad credit, you are likely to find a merchant loan is the best way to take your company to the next level.
First American Merchant (FAM) understands access to financing is crucial for small businesses, especially those with bad credit. If you are looking for a financing option that provides a quick and easy process that gets you the capital you need in a few days, then apply for a merchant loan with FAM. It cater to small businesses who are unable to secure funding through more traditional channels. Through its diverse programs, FAM has helped businesses gain quick access to working capital to fund a variety of projects since 2010. Its merchant loan process is simple and fast.