As the looming credit crunch drives entrepreneurs and small business hopefuls into the arms of alternative lenders, it’s easy to get caught in the merchant funding trap. Adjusting interest rates and payment penalties can quickly get you in over your head. But if you stick to a few simple rules, you can find adequate financial support with terms that you can live with. Here’s how.
What It Takes to Get Attention
Getting a small business loan is much more complex than it used to be. Federal, state and local regulations dictate the primary requirements for applying. As a rule of thumb, you’ll need to have a two-year history of processing credit card payments for most business cash advance loans. Also, most merchant funding companies require minimum monthly credit card sales revenue that fall within a certain range.
Knowing the Merchant Funding Game
The first rule of thumb is to examine the fine print. If the terms and conditions confuse you, have a lawyer look over any document before you sign. If you’re considering a merchant cash advance, you shouldn’t be required to disclose any financial statements or put up any collateral. And an invoice factoring deal works the same way; you only need to show your earning potential, such as past invoices of accounts receivable statements.
Know Thyself
A good way to prepare for meetings with potential lenders is to know your credit score and your business history. Those are two major factors that lenders will ask about before they make you an offer. With anywhere from $25,000 to $250,000 on the line, commercial lenders want to make sure they’re lending to a fiscally responsible borrower.
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