All businesses must overcome all nature of challenges in order to succeed and continually grow. Taking out loans to grow a business are part and parcel of running and progressing a business of any sort, whether selling products or services and whether with business premises or without. Whilst banks and traditional lenders do lend this money on occasions, there are also a range of alternative lenders, able to offer sometimes in excess of £75,000 depending on the applicant’s circumstances (source: Cube Funder).
There are a variety of reasons why businesses take out loans (usually business loans). Common reasons include:
One of the most popular ways of a business taking out a loan on flexible terms with reasonable and manageable repayments is a merchant loan. Many businesses take out merchant loans as a way to borrow the necessary funding to progress their business or sometimes, keep it afloat.
How do they work?
Merchant loans are popular as they are because rather than like other loans that a business may consider, they are specific to ‘merchants.’ This means that the lenders will usually take the running of the business in question into account in a way that other generic lenders and even perhaps a bank may not. Merchant loans work by the lender providing the loan amount to the business in full and requiring repayments to be made via credit card/ payment card terminals.
This approach predetermines a percentage of future credit (and debit) card sales. Once arranged and in place, the merchant has their cashflow structure slightly changed in that they need to continue accepting card payments as well as other payment options in order to keep their business running but also must ensure enough business passes through their card terminals in order to clear the loan.
Many merchant lenders though require the borrower to switch their card payment provider to a new provider. This is because some payment providers work closely together with particular merchant lenders and are well placed to facilitate these types of specific loans.
One of the major benefits of these loans in comparison to others is their flexibility. There will usually be a loan amount and the interest and any charges arranged from the outset and the borrower just needs to ensure that they get enough revenue through their card terminals in order to satisfy the terms of their loan.
Unlike many other loans where a lump sum is repaid each month or at the end of the term, these merchant loans make it easier to borrow and repay a loan. The borrowing merchant is less likely to ‘notice’ the money going out via the credit card terminals as they never have any contact with it as it is syphoned to the lender automatically.
Also, merchant loans will usually be a lot quicker to be approved than traditional loans such as those from banks. Therefore, a business that needs a cash injection quickly will be able to apply and have their loan approved much faster, allowing them to get on with running their business and putting the loan amount to good use. The criteria for merchant loans also tend to be a lot more lenient than those for bank and traditional loans, making them more suitable than ‘normal’ loans to people who may not have a perfect credit rating.
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