What Are The Advantages Of Merchant Financing For Small Businesses?

Let’s get to the point: running a small business means you’re living life on the edge, always threatened by some unforeseen cost. The espresso machine breaks down in the middle of the morning rush. A competing business opens across the street, and an upgrade is an absolute necessity. A supplier wants to offer you a huge discount, with only full payment due now. Bank loans? They’ll get back to you in weeks, probably months, while your opportunity evaporates and stress builds up. Really, this is where alternative business financing, such as some types of merchant financing, comes in, despite its cost.

Fast. Practical. Funding.

The biggest benefit is the speed, which is actually in keeping with the way business operates. Opportunities and challenges won't wait for loan committees or fill-out 47-page applications. If you have a business and you require funding for stocking up for the busy period or for purchasing vital equipment, you won't require it in two weeks or three weeks; you require it this week.

In the case of merchant funding, approval occurs within hours or days, not months. You can fill out your application on Monday, receive approval on Tuesday, and the money will be in the account on Wednesday. This isn’t just hypothetical; this is often the actual timeframe for a normal business. Compare this to the standard loan procedures at a normal banking institution where you’re still accumulating your documents three weeks into the application, and the benefits of merchant funding will clearly outweigh the competition.

Financing That Understands Real Businesses 

The honest truth about traditional business loans is that they’re often set up for businesses that don’t necessarily need the loan in the first place. So if you have perfect credit, two or three years of profitability, a lot of assets, and your books are in perfect shape, you probably don’t need the loan in the first place.” Merchant financing turns this on its head. A credit score of 580? Not optimal, but not insurmountable. Your business is only eight months old? Just as long as you’re consistently ringing up credit card sales every month, you're in the running. Had a rough year but turned things around? Your current sales growth is what credit lenders want to see, not what happened last year when it came time to file taxes.

Flexible Repayment Options That Can Be Adjusted According to Your Business

This is one of those “quiet, game-changing” differences. A traditional loan takes your payments, and they stay fixed each month, come hell or high water, whether it was 50k or 15k in sales volume that month. And if a given month slows down and you blow it and miss a payment, welcome to defaults, fees, and a loan that’s in collections. “Unforgiving and completely unreflective of how business cycles and/or irregular income may work.”

The loan is tied to “your actual sales” and takes daily or weekly payments off of your credit card proceeds for a percentage. If you’re killing it and bring in $60,000, you pay more. Then you have a slow month and bring in $20,000, and your loan payment will decrease as well. The business structure will change as your reality changes as opposed to being harmed in tough times. Just look at restaurants, stores, salons, and any business that has fluctuations, and you will see the power of having this kind of loan.

Without Collateral, Without Personal Risk

Typically, more traditional sources of financing will require collateral, the value of which could be your house, your car, or perhaps a priceless collateral-file cabinet stuffed with worry. 

Merchant financing is unsecured, which is to say you won’t be risking any of your own assets. If you happen to be one of those enterprising souls who’ve placed a significant chunk of their assets on the line just to get a business off the ground, you’ll certainly be relieved to know that you won’t be risking any of your own assets with merchant financing.

The Real Edge: Access

In other words, the bottom line is that the very nature of merchant financing involves the concept of "access." Access to funds in situations in which a traditional bank may reject the application. Access in situations in which time is a factor. Access even in situations in which the credit history may not be spotless. Access which attunes to the nature and unpredictability associated with a small business. Yes, it’s more expensive, but the concept of "access" doesn’t necessarily involve a numeric value.