Every organization faces a financial crunch at certain times, which can be dealt with by applying for business loans. Financing for business loans is a systematic process in which bankers have their valid concerns, and borrowers deal with their struggle to maintain an excellent credit rating and possess strongly backed collateral while applying for a considerable amount. However, small and medium-sized enterprises (SMEs) can receive quick funding cash if they fall short of it, and this is where merchant loan advance comes into the picture.
The financing institutions analyze these businesses’ daily debit/credit card transactions to check if they can repay on time. The amount to be sanctioned as merchant funding is directly proportional to the number of card swipes occurring daily. The more swipes, the higher will be the loan amount, and the tenure of repayment is short in this type of loan. The interest rate is comparatively higher, but the best feature is that these merchant funding providers have online portals where merchants can make and accept payments online.
Merchant financing should be distinct from any conventional business loan scheme. It is a method in which the lending institution has a shared percentage of the profit the borrowing party is gaining from the daily credit/debit card sales happening in the merchant account. So, in simple terms, the merchant is selling future credit card sales to receive quick funding, and it’s a win-win situation for both parties as the merchants are spared from the scrutinizing process of applying for bureaucratic loans.
The merchant financing system is composed of three integral components:
- Applicant:
The prime element of this system is the applicant who requires the funds, the amount that needs to be determined, which is the requirement at that time, and the intention behind that needs to be listed in the application request.
- Financier:
The next step is hunting down the financier whose terms and conditions you can comply with once he is on the right financing agency. Then comes the last stage of choosing.
- Debit/credit card system:
They can offer to either agree on their terms of deduction or incorporate their predetermined rates of interest on card sales, but both methods are sales based. It means they are flexible for the merchants, and lending organizations will accept merchant payment depending on the daily deals. On slow days the deduction will be less, and vice-versa. On non-functional days there will be no deduction.
It is a reliable source of funding for SMEs as the approved amount is disbursed within a short period, and it is adequate to impact the current financial needs and growth. However, there is a list of criteria to be eligible for obtaining immediate funds from some of the best online merchant services. Monthly card swipes should be appropriate according to the defined metrics.
Certain documents are also required for verification, such as KYC, bank account statements etc. As it is an unsecured loan, there is no need for collateral, and with such ease and flexibility, this type of short-term loan is a game changer for small businesses and start-ups.
