In a nutshell; a merchant loan is when a factor (an investor) purchases a portion of your businesses future credit card sales at a discounted rate. The payback is done automatically through your credit card processor using a percentage of your daily credit card sales, usually within 6-9 months.

Other terms used for merchant loans include; Credit Card Factoring, Business Cash Advance, Merchant Cash Advance or Unsecured Business Loan.

The business of providing merchant loans is relatively new. The first provider opened their doors less than ten years from when this article was written. The industry has been growing exponentially ever since. One word of warning; ask lots of questions and read everything very carefully before you sign anything. Most providers are very reputable and think in terms of building relationships. However, as in most businesses; there are always a few bad eggs.

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How do you qualify for a merchant loan?

Getting a merchant loan is relatively simple when you compare it to a bank loan. For most providers, all you need to qualify is;

You must be in business for at least 6 months. You must process Visa and MasterCard transactions. You must process at least $2,500 a month in Visa MasterCard sales.
The application process

In order to begin the application process, most providers ask that you fill out a simple 2 or 3 page application form. Along with the application form, you will need to provide the previous 4-6 months of your merchant statements. After you submit the required information, it generally takes about 24-48 hours for approval. Once approved, you will be given a quote with an up-to-the-penny outline of your payment terms. I everything is agreeable, you sign the paperwork and the money is deposited into your bank account in about a week.

It is important to note that the entire process takes less than ten days as opposed to the several weeks it takes for a bank loan to go through.

It is also important to note that rather that giving you a fixed payback schedule with the same payment due each month; a merchant loan payback is based upon a percentage of your daily credit card sales. It is significant because on days when your business is slow; you pay back less. This flexible payback schedule takes some of the stress off your business when things slow down. This helps to promote your businesses success. This way; everybody comes out on top.

What are the disadvantages of a merchant loan?

A business loan has one clear advantage; the cost. Most businesses apply for a merchant cash advance because they either need the money quickly or they have been turned down by the bank. Because a merchant loan is unsecured, it carries more risk. Because there is more risk, it is more expensive.

What are the advantages of a merchant loan?

A merchant cash advance has many advantages over a traditional bank loan. These advantages include;

No Collateral Poor credit OK Adjustable payback Quick funding Easy application process No UCC-1 filing

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