Finding the Right Merchant Funding Source


Minyang Jiang

Are you in business for yourself? If so, you’ve probably already come across a time or two when extra capital could have really come in handy. During these times when capital is short, a small business loan could have really helped.

Unfortunately, many small business owners have found out the hard way that getting approved for a loan through a conventional bank is not as easy as it may sound. Plenty of business owners get turned down for a loan from their banks because they simply can’t meet the strict criteria that the banks demand.

Fortunately, there are alternative merchant funding source options available for small business owners to get a loan.

Merchant Cash Advances

One of the more common merchant funding source that is becoming increasingly popular among borrowers are merchants cash advances. With this type of funding solution, you can get your hands on a lump sum of money quickly to cover various business expenses. The money is paid back by allowing your lender to take a part of your credit card sales every day until the full amount is paid off.

The great thing about this set up is that your payments reflect how much money you bring in each day. So, if you have a big sale day, you pay more (since the amount you pay is based on a percentage of the credit card sales). On slower days where not as much money is coming in, you pay less, so you’re never wiped out of working capital.

It should be noted, however, that merchant cash advances can come attached with higher interest rates compared to conventional loan types.

Invoice Financing

Many businesses experience gaps between invoicing customers and actually receiving payments to cover them. During this time period, money is still needed to cover ongoing expenses, such as payroll, lease payments, and purchasing equipment. If you don’t have the money to cover these expenses in the meantime, you can apply for invoice financing to make the payments.

This merchant funding source involves selling your invoices to a lender, after which you are fronted with most of the loan amount. The rest of the money is kept in reserve from which the lender withdraws their fees. Once the invoices are paid, you’ll be given whatever money is leftover in the reserve fund.

The benefit of invoice financing is that it’s easy to apply for, bad credit is OK, and the money is deposited into your account right away.

The downside of invoice financing is that you may be charged higher fees than traditional financing. In addition, the longer it takes a client to pay off the invoice, the more money you might owe.

Business Lines of Credit

With a business line of credit, you are given a certain amount of money that you can withdraw from whenever you need to. The amount of money you withdraw can be as little or as much as you like, as long as you stay within the credit limit. Once you pay the amount that you withdrew, you can continue to draw upon the funds as the needs arise.

The great thing about this merchant funding source is that you only pay interest on the amount withdrawn, and not on the entire credit amount. Capital is always available when you need it, and you don’t need stellar credit to get approved.

However, you may require collateral, and it could tie up your credit in the meantime.

Unsecured Short-Term Loans

If you have a pressing need to fulfill in the short term, an unsecured short-term loan can be just the thing. With this merchant funding source, you are given a certain amount of money from a lender which needs to be paid back – usually between 2 to 9 months – along with the lender’s fees. Unlike a term loan, a short-term loan needs to be paid back in a shorter period of time, and payments are usually made daily rather than monthly.

You have the advantage of not requiring any collateral if the loan is unsecured. There’s limited paperwork to fill out, and the debt sits on your record for a short time period.

Just keep in mind that the interest rate could be quite high, especially if the loan comes with no collateral.

Getting Started With Merchant Funding

We can help walk you through the merchant funding sources that are available to you. Every situation is different, which means you need a funding solution that specifically meets your specific financial needs.

Need help find the right business funding solutions? Contact Credibly or submit our online pre-qualification form. Submitting is free and easy and will not hurt your credit.