We are highlighting ten key difficulties to avoid when seeking business cash advances and working capital using credit card processing. It is especially important for business owners to realize that it is not necessary to accept any of the ten credit card factoring problems.
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. If the ten most common business cash advance problems can be avoided, the total business benefits will be maximized.
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. Ten common credit card receivables problems that business owners should avoid when employing this strategy are highlighted below.
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, some lenders will require financial statements and tax returns for all business cash advances. 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 providers of business cash advances currently require credit scores of 680 or higher. 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.
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