With the current state of our economy, many businesses are becoming more and more concerned about their own financial situation. Most businesses rely on having quick access to cash so they can keep their business running smoothly; usually by taking out small business loans. The issue is that many lenders aren’t lending money like they used to back before we had this financial problem. Now businesses are left trying to find other resources to get their business capital. One alternative source that has been in the new a lot lately is the merchant cash advance otherwise known as credit card factoring.
What exactly is credit card factoring?
Credit card factoring is a way to get cash flow to businesses that are suffering from cash flow problems. I’m sure you understand how difficult it is to keep up with you vendors, employees and other business expenses every month. Whatever the reasons may be, any disruption of cash flow can seriously hurt your company’s credit rating and cause even more cash problems, ultimately causing your business to decline dramatically or even fail in some cases.
Typically, a factor is either a sole investor or a business that lends you money to meet your company’s cash flow requirements. The money is to be paid back within a set period of time – much like a short term loan. There are credit card receivables factoring, invoice receivables factoring, accounts receivable factoring and other forms of factoring that are routinely used by businesses that tend to have cash flow issues regularly or during the slow seasons.
In a nut shell; credit card factoring is when a factor (lender) gives your company capital upfront based on your future credit card sales.
What kind of businesses uses credit card factoring?
Merchant cash advances aren’t exactly the least expensive way to get your cash. That said; merchant cash advances aren’t always the best choice for everyone. However, they are a reasonable alternative for businesses that may not have the best credit or that need to get their cash in a hurry. A poor borrowing history generally limits the places a business can go to get a loan which result in either being turned down for the loan or getting a very high interest rate on the approved loan.
Some of the businesses that use credit card factoring the most are bars and restaurants, retail stores and businesses that provide services like mechanics or salons. In each case, the amount of business done with credit cards allows the factor to consider profit availability.
Getting an unsecured loan could be the only way a business owner can financially survive during tough economic times, but the owner should be aware that there are some less than reputable lenders out there.
A credit card factor will not necessarily look at the business owner's credit history or credit score as reason to decline the unsecured loan. Instead; they look at your credit card sales history more than they look at your business’s credit score. And while banks may take several weeks or even months to approve a loan request, a credit card factor can approve a merchant cash advance in a matter of days.
Overall, credit card factoring is a win-win deal for both parties. Please; if you do decide to use a merchant cash advance company, it is best to verify the legitimacy and honesty of the lender the best way possible. You might consider asking for references or checking the Better Business Bureau.
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