Why A Merchant Loan Isn't A Loan

There are a lot of methods to get working capital for your business

, but not all of them involve a normal loan. A merchant loan is really a type of factoring. Factoring is a practice whereby a small business sells its future credit card sales to a factoring company - the factor - at a discounted rate in exchange for cash with which to fund the business as soon as possible.

In today's business situation it is no surprise that a large number of new businesses are having a very tough time acquiring traditional business loans through a bank. The banks are extremely tight-fisted with their funds right now. Luckily merchant loans from factoring agreements are still available and the requirements are considerably less stringent than those located at the local bank.

To obtain a merchant loan, many companies need a business to have been open for at least a year and processing credit cards for at least 6 months. Since repayment of the funds is directly tied to credit and debit card sales, proof of this revenues is also necessary.

A piece of these future credit card sales is agreed upon as the daily repayment capture, simplifying the financial burden for the business during a period where things are slow. Unlike a bank small business loan, the daily capture capability allows business owners to pay back at their own pace instead of being responsible for fixed monthly payments that could result in the business going out of business.

Because this money is not acquired in a conventional loan, if the merchant fails to meet the stipulations of the agreement, for example, using different credit card services to receive payments, they are still held personally responsible for the amount left over.

However, for a lot of early businesses, this form of financing is still the best. Flexible repayment terms, fast access to needed cash and simpler acquisition of said financing, makes a merchant loan a great choice for many entrepreneurs.

by: Daniel Samoohi.

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