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How Merchant Loans Can Help You Grow Your Business

While merchant loans have been heavily criticized by traditional lenders, they offer a convenient way for small business to obtain the capital they need when banks are turning them down.

Critics of these loans claim that now the payday loan industry has come to the business world and that small business owners are lured in a cash and interest trap, of which they can hardly escape. Interest rates for merchant cash advances can range from 60% to 200% effective annual rates.

Proponents say that you can’t compare them with traditional loans. Merchant lenders rather advance cash in return for a share of future credit card charges. By only collecting a fixed portion of monthly credit card sales business owners don’t need to worry about having to pay back the loan when the business is slow. But when business is better than the loan is paid back faster.

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Here are the mechanics of a typical merchant advance transaction. You are a retail oriented small business owner. You need additional working capital to improve your store and increase sales. Your banker just laughed at you and your mother in law thinks you are crazy. How are you going to be able to find the capital you need to maintain your business or even grow it.

In this situation often your only safe way to additional cash is talking to a merchant lender. There are now dozens of reputable providers of advance loan products, that are available to discuss flexible options of capital that match your actual cash flow.

Based on your credit card sales the lender will determine what portion of your monthly sales can safely be used to pay back the advance. Once they figured out what amount they can lend you, they will determine the fee based on your business’s information.

The advancing company has a vital interest to make sure that you can retain enough of your monthly sales to ensure that your business stays healthy. They in a sense are now in the same boat as you are. Typically the lender would try to limit the percentage they would take of the top of your monthly sales to no more than 10%.

Now if your business is doing much better because you had access to the working capital you needed, your revenue might increase to $40,000 a month. In this scenario you would still pay 10% of your monthly sales and you would pay back the advance in 6 months rather than 12.

On the other hand if your business slows down because the economy took a nosedive suddenly, your revenue might drop to $5,000 a month. You would still only pay 10% and you would now take 4 years to pay back the advance.

This flexibility and the monthly payments that automatically align themselves with your cash flow is what really make merchant loans attractive loan alternative for small business owners.

If your business needs a financial boost to grow, why not consider taking out a merchant loan? Merchant loans can be used to purchase equipment, expand inventory or any other purpose that will expand your business sphere of influence.