Applying credit card services online using laptop

The Real Cost Behind Credit Card Processing Loans

Nowadays, businesses or establishments that don’t accept credit cards are at a disadvantage. With more and more shoppers going cashless, not being able to offer debit or charge payments could mean lost business. For most establishments, going to companies that offer credit card processing for lending is a big advantage. Not only does it make sure that they can accept credit card payments, but it also helps keep their businesses afloat.

However, the possible downside to credit card processing loans is higher than average interest rates brought about by two things. First is the short-term nature of credit card processing loans, and second is the low credit ratings of the borrowers. Let’s take a closer look here.

Advance Amounts and Interest Rates

Establishments or businesses that use credit cards are allowed a line of credit and a merchant cash advance. For example, you have $25,000 in monthly credit card processing sales. This can give you a merchant cash advance of around 1.5% or $37,500. The amount can be lowered depending on your monthly receipts.

The factor rate, on the other hand, refers to how much you are required to pay the merchant company back. On average, businesses are asked to pay around 30% of the amount through monthly sales. This amounts to 1.2 to 1.5%, but if converted to annual percentage rates, it runs to about to 20 to 50%. Also, consider that credit card processing loans must be paid off over a shorter amount of time than ordinary loans. Instead of the usual 12 months or one year, the loans should be finished within six or nine months.

In some cases, lenders set a specific amount to be paid over a fixed number of months. This depends on how secure and stable the business is. If the lender perceives that the cash advance is risky because of the borrower’s reputation and the overall performance of the business, the lender may shorten the number of months even further.

These may sound like a bad deal, but in reality, it isn’t. With merchant cash advances, businesses get upfront financing in exchange for a portion of the retail merchant’s credit card transactions for the day. Some lenders even accept a combination of fixed payments in cash and remittances from credit card transactions.

If you were to go to a bank and apply for a loan for your business, you would have to present plenty of documents and fill out a ton of forms. Credit card processing loans don’t require you to do that.

The Advantages of a Credit Card Processing Loan

Checking credit card history using mobile phone

Retail stores that process a lot of credit card transactions benefit the most from credit card processing loans. Lenders grant loans without asking for collateral and paperwork. The amount you can borrow depends on the strength of your daily credit card transactions and cash flow. Additionally, merchant cash advances are one of the quickest ways to fund your business. Credit card merchants are pre-approved almost immediately. The financing part comes a few short days after.

Credit card processing loans serve a specific purpose. They are ideal for businesses that are just starting up and need the funds without having to put up anything as collateral. Interest rates may be a bit higher, and the term of the loan may be shorter. However, the lender relies on the strength of your credit card transactions. If you’re confident that your business will be able to recoup investments fast because of plenty of card transactions, a credit card processing loan will help you.

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