The Program

On businessloansmall.org, we provide merchants with two unique ways of obtaining a small business loan for their business: 1) a short term bank loan product that build’s personal and business credit and 2) a program that involves the selling of future credit card receivables today, at a discounted rate.  (The second method is outlined in this article, where the first can be found here: bank loan).  A lender will purchase these credit card receivables and will advance the merchant a lump sum of money.  The merchant does not pay interest – per say- on the borrowed amount, but pays a factored – flat rate fee for the money.  The merchant can expect to pay back a factor of 1.25 – 1.50 on the money that he borrows.  The merchant knows exactly how much money he will receive, and exactly how much money he will need to pay back the lender in order for the transaction to be completed.  The lender will collect a percentage of the merchant’s future credit card receivables until the factored amount is paid back in full.

For example:  A merchant borrows $20,000 and can expect to pay back anywhere from $25,000 to $30,000 on the money.

The factors that affect how quickly the advance will be paid back and what the percentage collected from the Visa/MasterCard receivables are the following:

  1. How much the merchant borrows in comparison to how much he processes monthly
  2. What percentage the merchant is comfortable the lender withholding from credit card batches
  3. How quickly the merchant is interested in paying off the advance

The longer the advance, the more costly the money simply because the merchant is holding the money for a longer period of time.  The hold-back percentage will be relatively lower on a longer program.  If the merchant is interested in infusing money into the business and then to payback the advance quickly, then he may be inclined to have the lender withhold a larger percentage of credit card receivables – thus making the money cheaper.

Usually, there is no time period over which this advance MUST be paid.  There are no late fees or payments to be made since an automatic percentage is taken from each batch.  The underwriters base the holdback percentage off of the merchant’s past Visa/MasterCard sales.  Thus they predict what future sales will look like.

For more about qualifying for a small business loan program.