Credit card processing and small business loan strategies are closely connected in many ways. Business owners should not overlook the substantial working capital benefits which will accrue to their business by effectively coordinating credit card factoring and processing. These benefits will increase measurably if a number of common business cash advance problems can be successfully avoided.
Even thriving small businesses frequently need more working capital than they can borrow from a bank. One of the most important commercial financing needs for any business is ensuring that short-term cash requirements are successfully met. This is frequently a difficult task.
The use of a viable business cash advance strategy has become an increasingly important business finance tool for many businesses faced with a potential short-term cash shortfall. There are a number of common problems (noted below) to anticipate and avoid when businesses use credit card processing to acquire working capital advances.
Most merchants have documented credit card processing activity and sales volume. Since up to $300,000 and more can typically be obtained using a business cash advance based on future sales, documentation of processing activity is a valuable financial asset.
Businesses should realize that there are several recurring problems that should be anticipated prior to using this strategy for working capital business cash advances. Highlighted below are ten common credit card receivables problems to be avoided when business owners are considering this financing approach.
First, many lenders will attempt to charge closing costs. Business owners should realize that this is an unnecessary transaction cost for business cash advances when dealing with a truly reputable provider of working capital financing based on credit card factoring.
Second, many lenders for these services also charge up-front fees. With the best programs there are not likely to be any up-front fees, and this is a transaction cost that can and should be avoided.
Third, many programs for business cash advances have collateral requirements. For business owners seeking credit card financing, this is an unnecessary requirement and should be avoided.
Fourth, a number of providers will require tax returns and financial statements for business cash advances regardless of size. Such additional documentation requirements should only be necessary for larger working capital advances.
Fifth, monthly fixed payments to repay merchant cash advances are imposed by some providers. The preferred approach is to avoid such fixed payment requirements.
Sixth, some providers impose a fixed term for repayment. This requirement to pay off the business cash advance over a fixed term should be avoided.
Seventh, many business finance programs require businesses to have at least two years of operating history to qualify for working capital business cash advances. While many business owners can meet such a requirement, a more practical standard for newer businesses is a minimum of one year in business.
Eighth, most business cash advance providers require credit scores of at least 680. For many business owners, this can be an insurmountable requirement in the current economic climate. It is feasible to obtain this kind of working capital financing with scores around 500.
Ninth, for merchants needing larger business cash advances, it will be disappointing to learn that many programs are limited to a maximum of $25,000 to $50,000. Providers that are better capitalized for this business finance strategy will be able to accommodate an advance of $300,000 and higher.
Tenth, quite a few programs require up to 24 months of credit card sales of $25,000 or higher. A more practical possibility for business owners will involve a transaction history with six months of $5,000 or more.
It would be unusual for all of the obstacles described above to be relevant for all businesses. Business borrowers are likely to experience several of these problems if they are considering a business cash advance that uses credit card factoring and credit card processing.
Can all ten credit card finance obstacles discussed above be avoided? There are indeed viable credit card receivables programs which avoid all of the problems described. For any business owner considering this approach to working capital financing, it is probably worth repeating that it is not necessary to accept any of these problems in order to obtain business cash advances based on future sales.
Traditional lenders providing competitive commercial financing for special purpose commercial real estate loans and business cash advances are becoming increasingly rare. "Thinking Outside the Bank" means that non-traditional (non-bank) lenders should be evaluated for commercial mortgage and working capital loan situations.
When commercial borrowers "Think Outside the Bank", it is of critical importance that they are prepared to avoid a wide variety of problematic traditional as well as non-traditional commercial lenders in their search for viable business financing, especially when it involves business cash advance (credit card receivables and credit card factoring) programs, credit card processing services and commercial real estate financing.
Borrowers should realize that they have more commercial loan options than they think in order to take advantage of "Thinking Outside the Bank". These business financing options are referred to here as "Thinking Outside the Bank" because most commercial borrowers believe that a bank is the best source for a commercial loan.
Here are two brief examples about how a commercial borrower is likely to benefit by "Thinking Outside the Bank". In many situations a traditional bank will provide a commercial mortgage but will include non-competitive covenants and terms. In other cases a traditional bank will decline the business loan because they do not provide commercial financing to the commercial borrower's particular type of business.
Some borrowers are likely to feel that a traditional bank is their best source for a commercial mortgage or commercial loan. However, because most traditional banks focus on a small number of established industries, non-traditional (non-bank) and non-local commercial lenders should be actively considered for most business financing situations. As discussed in this article, the suggested business loans strategy is "Thinking Outside the Bank".
As described in a prior commercial loan report, in many business financing scenarios it is typical for a traditional bank to require more business loan covenants than would normally be seen in a competitive commercial mortgage situation. Traditional banks can unfortunately take advantage of a shortage of commercial lenders in their local market area.
An effective response by borrowers is to emphasize business financing options other than the traditional ones. Business borrowers should not depend only upon regional and local banks for commercial loans. A non-local lender can often provide better business loan terms for common commercial financing circumstances because of competition with other lenders.
There are three business loan scenarios in which borrowers will commonly discover that non-traditional lenders will offer terms that are better for the business owner: commercial real estate financing and SBA loan programs, working capital business loan programs and business management programs for credit card processing.
Two of the worst commercial real estate financing problems for business owners can be eliminated by "Thinking Outside the Bank". The first commercial mortgage business loan problem is the typical bank practice to eliminate most special purpose business properties such as golf courses and funeral homes from their lending portfolio.
A second business loan possibility is the frequent practice of many commercial banks to add recall and balloon conditions to their commercial loans. The bank can then require early payoff of the commercial real estate loan under stipulated conditions. The use of a non-traditional lender can prevent both of these commercial financing problems.
Many merchants that accept credit cards in their business will qualify for a merchant cash advance with credit card factoring. If a business needs to use credit card factoring, a traditional bank will typically be of little help.
Because even the most successful merchants usually need more financial resources than they can get from a conventional commercial business loan, it is essential for a business to "Think Outside the Bank" and find non-traditional lenders to coordinate this commercial financing requirement.
A credit card processing service can be a key function in improving the bottom line of merchants with high volume credit card activity. The analysis of credit card processing providers can be efficiently combined with credit card receivables and credit card financing.
It is usually possible to achieve improvements in the business owner's credit card processing services by coordinating a business cash advance and working capital business loan program. Traditional banks are usually not competitive in providing assistance with a business cash advance using credit card receivables. So it is likely that a non-traditional lender will be the major source of help with these complex business needs.