Have you ever tried to make a cash advance from the company you work for? If yes, then perhaps you know very well how the process works: once your application is approved, a fixed amount of cash is deducted from your next pay. But what if your work depends on a specific number of hours, like a teacher, for example? Then there’s a possibility that you will be left with little when payday arrives.
A similar idea exists for those looking for an alternative source of money to start a business. Credit Card Factoring or merchant / business cash advance is a considerably good way to fund your next business venture.
What is credit card factoring, or business cash advance? Credit card factoring allows you to “borrow” money for business use and pay it according to your future credit and debit card sales. In comparison, bank loans require you to pay a specific amount of money on a specific date; while in credit card factoring, your payment for the next term depends on your future sales.
So why choose credit card factoring / business cash advance? I certainly cannot tell you to choose this, but here are some of its advantages and disadvantages. In the end, the decision will be yours to make.
Pros. Since credit card factoring depends on a certain percentage of your future card sales, companies that worry about keeping aside money for paying the loan during slow seasons need not worry about hitting rock bottom when this happens. Since the factor (the party giving the loan) will only get a percentage of the sales, only a portion of the sales will be paid to them, leaving something reasonable for the business owner to continue operation.
Credit Card Factoring is also easier to get approved compared to bank loans. Where banks depend on the borrower’s credibility and worthiness to grant loans, credit card factoring depends on your future sales. Also, there are fewer requirements for you to submit before getting approval! Better yet, there is no need for the business owner’s personal collateral!
Cons. Not that credit card factoring sounds too good to be true – it does have its disadvantages. First, just for illustration purposes, a business operating around credit card factoring is, well, rich. This is because their company can charge high interest rates on the loans that they offer businesses. By the time the borrower pays up the entire loan, the interest that he may have paid can add up to 30% to 200% or higher, depending on the borrower’s policies.
In conclusion, some business owners find the credit card factoring / business cash advance to be their last resort when looking for a way to start a business. However, credit card factoring may come to be a saviour to a budding entrepreneur who can’t find a traditional bank or business loan. Whatever source of funding you decide on in the end, I wish you good luck on your endeavour!