Merchant Financing: What It Is and How to Find It

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How much do you need?
How does merchant financing work?
- Apply for funding. How much merchant financing you qualify for depends on your sales history — the more you sell, the more a merchant financing lender will likely be willing to lend. You can borrow as little as a few thousand dollars and as much as six figures. In general, your credit score isn’t a factor.
- Receive funding. Merchant financing can usually be available within a day or two.
- Start repayment. Your merchant financing lender will set up a system for intercepting the money that your business takes in through card transactions. Through that system, it’ll take an agreed-upon daily percentage of your transactions for repayment.
- Pay off the borrowed amount, plus fees. Even with daily payments, it can take time to fully repay the amount you’ll owe. On days when business is good, you’ll pay more toward your balance. But on slow days, you’ll pay less.
How much does merchant financing cost?
Merchant financing lenders: Explore your options
PayPal
Square
Stripe
Pros and cons of merchant financing
Pros
- Easy to qualify for. Many merchant financing lenders don’t even consider your personal or business credit history. Instead, they’ll focus on your sales history.
- Automatic repayment. You don’t have to worry about missing a payment because the funds are withdrawn directly from your credit card transactions.
- Repayments are based on your sales. If you have a slow season, your repayments will shrink accordingly.
Cons
- Costly capital. Though it can be difficult to compare merchant financing with other small-business loan products, this debt can be significantly more expensive than other types of business loans.
- Constant repayments. Every time you make a sale, a percentage of your revenue will go toward your merchant financing. This can stifle your cash flow and potentially lead to a cycle of debt in which you have to keep borrowing to pay off what you owe.
- Requires you to rely primarily on one type of payment. Merchant financing is typically based on your sales processed through a specific payment processor. If you take payments via another source, like cash or ACH transfers, those aren’t considered in your financing application.
- Short terms. Merchant financing lenders won’t let you draw repayments out indefinitely. If you don’t have enough revenue to repay your lender in a certain amount of time, you may have to make payments another way.
Alternatives to merchant financing
Online small-business loans
- If you want to make less frequent repayments: With the American Express® Business Line of Credit, you’ll need to make only monthly payments, not daily or weekly ones. You can qualify with an average monthly revenue of at least $3,000, which is more than most merchant financing providers require but less than that needed for other business loans.
- If you want a longer repayment period: OnDeck offers a loan with terms of up to two years, which is six months longer than the maximum terms for Stripe Capital. You’ll still have to make weekly or daily repayments, though.
- If you have bad credit: Fora Financial offers working capital loans to business owners with credit scores of 570 or higher. But like with merchant financing lenders, Fora Financial’s fees are based on a factor rate instead of an APR. The company also offers merchant cash advances.
SBA microloans
- Want the lowest possible interest rate.
- Want a long repayment term.
- Don’t need funding immediately.
Business credit cards
- Aren’t sure how much financing they need.
- Have been in business for less than a year.
- Don’t have enough revenue to qualify for merchant financing or a business loan.