Lending Alternatives to Consider
As your business grows, you’ll need to find ways to continue financing your activities so you can scale up. It’s important to understand the types of lending options that exist in the marketplace, so you can determine which one is right for you at any particular stage in your business’ life cycle. One alternative lending source is known as a merchant cash advance. In this type of financing, a lender looks at your company’s credit card sales volume to determine the amount you can borrow. Here is a closer look at this type of financing, as well as other alternative lending sources.
Credit Card Receivable Funding
Credit card receivable funding is another name for financing that uses your credit card transactions as the basis for the amount you can borrow. This isn’t a loan; rather, it’s a lump-sum payment based on your company’s future credit card sales. The lender will look at your past credit card transaction volume to determine the percentage to be financed. Then, you’ll be charged a fee known as a holdback in order to access the financing. This is a short-term cash flow option, as terms usually run anywhere from three months to a year and a half.
A merchant cash advance has several benefits. One of the most common is that businesses that have poor credit histories can access this type of financing more readily than a traditional bank loan. That’s because lenders look at credit card volume rather than credit history in order to determine whether or not to provide the cash financing. A business may also choose this type of financing because it provides a quick influx of cash for covering immediate expenses.
Businesses have other alternatives to traditional bank loans, including peer-to-peer online loans and short-term online loans. These types of loans often have higher rates than bank loans, but the benefits can outweigh the drawbacks. If your company needs liquidity in the short term and you plan to pay back the loan within three months to two years, an online lender could be the right choice. In peer-to-peer lending, sometimes called P2P, a third party matches lenders to borrowers. These loans are managed completely online and the approval process is quick and streamlined.
When you’re seeking financing for your business, you have many options in addition to a traditional bank. If you’re a business owner with a reliable credit card transaction volume, and you need a short-term cash influx, a merchant cash advance may be a suitable alternative lending source.