Credit Card Business Loans
In 1999, American consumers used around 1.2 trillion dollars on their credit cards and these numbers have only continued to go up since then. In the United States today, a majority of the population has at least one credit card, with many of them having two or three. While there are definitely some difficulties in having credit cards, it is important to remember that by educating yourself on how they work and the different rates, fees, and stipulations with each credit card, you can actually experience huge benefits with having one or more credit cards.
Simply put, a credit card is a thin plastic card that typically has personal identification information on it, such as your signature or picture, as well as your name. Credit cards originated in the United States during the 1920’s when companies, such as hotels and oil companies, began providing them to customers for purchases made at their stores; we still see this today with many businesses. As this trend took off, the first universal credit card emerged in the 1950’s. This new universal credit card allowed consumers to utilize a line of credit at a variety of stores. In conjunction with that, a bank credit-card system was later established which allowed the bank to credit the account of the merchant, allowing a business owner to get paid immediately. This quick evolution of credit cards has opened the flood gates, meaning that today, over 66% of all in-person sales are made with both debit and credit cards. This is only increasing due to the amount of businesses that will only take cards today, forcing more and more people to stop using or carrying cash. Small and large businesses are starting to realize the tremendous impact that having a merchant account that allows credit card processing is having on their businesses. Without the ability to process all forms of payment, your business will face many difficulties.
What is Credit Card Processing – How does is Work?
Credit card processing is a system that involves the cardholder (customer), the merchant (business), the acquiring bank (merchant’s bank), the issuing bank (cardholder’s bank), and the card associations (Visa, MasterCard, and American Express). Just so we are all on the same page – the cardholder is the customer who uses their credit card to purchase goods or services from the merchant. The merchant is the business or business owner that has an existing merchant account. A merchant account is the established bank account that a business owner sets up to enable the use and authorization of credit card payments. After a cardholder purchases a good or service from a merchant using a credit card, the acquiring bank, which provides the merchant with the equipment and software to process these forms of payment, essentially contacts the issuing bank for the payment. From there, the acquiring bank then takes their fee (which is set up with the merchant ahead of time) and deposits the remaining balance into the merchant’s account. From there, the bank fee is split with the card association that was utilized.
Advantages of Credit Card Processing
Credit Card Processing in all businesses is essential. Here are a few reasons why all merchants need to utilize this process:
- Credit and debit card payments are becoming the most prominent form of payment from consumers, allowing your customer base to grow.
- If consumers have the ability to use their credit cards, they are more likely to impulsively buy your products, which contributes to a businesses’ sales.
- Typically, merchant credit card transactions are processed electronically and quickly, meaning a business owner no longer needs to wait for checks to clear and less cash lying around.
- Since merchant processing transactions are securely screened, the risk of fraud through checks is decreased.
- After being aware of different fees that are associated with credit card processing and merchant accounts, a company can easily seek out a company with a great deal that includes low rates and fees.
- The United States is currently making the transaction from magnetic stripe technology to EMV (cards with chips). This can be a pricey switch for merchants that have already invested in credit card processing systems, however this will increase the amount of people willing to shop at your establishment since chip cards reduce fraud. For more information about what this transition means for your business, you can view webinars and online resources through the U.S. Small Business Administration’s website.
Fees Associated With Credit Card Processing
When debating about using credit card processing for your company, researching the different fees and costs associated with it can be overwhelming to say the least, which is why we are going to do a simple break down of the typical associated costs of credit card processing options.
When establishing a credit card processing system for your business, managing your merchant account, otherwise known as a credit card processor, is typically the first step. A merchant account is a type of bank account that allows your business to accept credit card payments; this system automatically and securely reviews, verifies, and securely authorizes the transaction, then deposits it into your bank account. Other parties involved include credit card associations (like Visa, MasterCard, and American Express), credit card issuing banks (Chase, Wells Fargo, etc), and credit card processors (acquirers).
There are three major types of fees to be aware of when establishing a credit card processing system – transactional fees, flat fees, and incidental fees; these all fall under either wholesale fees or markup fees. Wholesale (or base) fees are non-negotiable because they are determined by the credit card issuing bank and associations and are consistent throughout every provider. However, markups vary from provider to provider, which is why doing your research in finding the best merchant account provider to conduct business with is essential.
What is a Credit Card Processing Loan?
A credit card processing loan (also called a merchant cash advance) is the sale of a retail merchant’s credit card processing deposits or transactions in return for upfront financing. A credit card advance lender will analyze a company or merchant’s credit card processing statements, and then provide a funding amount the lender feels comfortable with. After the funds are distributed to the merchant, a percentage of each days credit card transactions are set-aside as repayment to the credit card processing funding company until they are fully-repaid. This type of funding isn’t to be confused with an ACH loan — which is the sale of a company’s future debit card and bank deposits in return for upfront cash. With that having been said, it is not uncommon for a merchant to seek both a MCA loan (credit card processing loan) and ACH Business cash advance. In fact, there are some cash advance lenders that are willing to do split-financing — in which repayment is made each day through a combination of credit card processing remittances as well as a fixed daily payment from the company’s bank account via ACH.
Advantages of a Merchant Cash Advance?
- Access: A credit card processing loan may be a good fit for your company if you are a retail store that processes a large amount of credit card transactions. By factoring your credit card transactions you don’t need to provide other personal or business collateral required by traditional banks. The credit card factoring company is strictly using your company’s cash-flow as the basis for financing.
- Speed: A fast merchant cash advance is about the quickest form of business financing. A merchant can be pre-approved almost immediately, and financing can be achieved in the matter of a couple of days.
How to Get a Credit Card Processing Loan?
1. Application and Statements
Supply 3 months of the merchant’s credit card processing statements along with a signed credit application.
2. Review Offer
After analyzing your statements a lender will then provide an offer stating the funding amount, rates, terms and fees associated with the loan.
3. Get Funded
If the offer provided by the lender is acceptable to the merchant, the lender will send the borrower contracts and further stipulations. After the contracts are signed and the stipulations are met, funding will occur.