Fact or Myth? The Truth about Online Small-Business Loans

Nov 27, 2015

Small business loans have grown in popularity in the last decade. Why? Their popularity has risen as banks have become more risk averse, accompanied by the demand for small-business capital. In a new survey conducted by financial software company Misys, small to mid-sized companies across North American, Europe, the Middle East and Africa reported that their ability to manage their working capital is not supported by their banks. Instead, 24% of global respondents finance their working capital through a combination that includes non-bank alternatives.

There are several myths concerning online small-business loans that all merchants should be aware of during their search. While there can be some truth to these claims, not all online small- business loans are the same. For businesses in need of cash fast, and for those that do not qualify for a traditional bank loan, they can be a great option.

Myth #1: They are unaffordable.

While some small-business loans and merchant cash advances are aimed at subprime borrowers and have overwhelmingly high annual percentage rates – 60% to 200% – there are online lenders that offer affordable options. These online lenders can offer accounts receivable, lines of credit short-terms loans for managing cash flow and term loans for larger purchases; these options range from 7% to 98% APR.

Myth #2: They are only subprime borrowers.

The good news is that small-business loans from online lenders are not just for borrowers with bad credit. They can be used for so much more. Some merchants have turned to online lenders because they can receive the cash they need quickly, even though they can qualify with a traditional bank.

Myth #3: They are unregulated.

It is true that online small-business lenders aren’t regulated by the Truth in Lending Act. This Act requires that lenders clearly disclose APRs. According to a 2015 study by the Federal Reserve Bank of Cleveland, borrowers have shared that this lack of regulation makes it hard to compare options for online small-business loans.

However, online small-business lenders are held accountable by other laws, including the Fair Credit Reporting Act. This Act states that only certain parties can check your personal credit – including lenders. The Equal Credit Opportunity Act also ensure that lenders cannot refuse to offer services based on a merchant’s race, gender, religion or protected characteristic.

Above all, it is important to recognize that online small-business loans is a broad category with a long list of loan products. The ability to react to changes, needs and opportunities is essential for any business. Flexibility allows for a business to maximize its potential. Access to liquid assets through business funding – like the business funding services at EMB – can be a game changer for your business. The key is to find an option that works for your business, and one that matches its needs.

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Having a merchant account allows an account holder to take advantage of merchant cash advances. When a merchant is approved for an advance, the business agrees to receive a lump sum of cash in exchange for an agreed-upon percentage of future credit card sales.

Pricing varies depending on the merchant’s industry, past credit card processing history, the type of business seeking the account, average ticket sales, and average transaction volumes.

Yes, EMB works with merchants who are building their credit, as well as those who have poor credit. EMB also approves merchants that have no credit card processing history and businesses that have lost their merchant accounts due to high chargebacks.

Several factors influence a merchant’s risk level. Though only one factor likely will not get a merchant classified as high risk, a combination of these may: business size, location, and industry, credit score, credit card processing history, a industry’s reputation for excessive chargebacks, a prior history of high chargeback ratios, and whether a merchant exclusively sells online.

Virtual terminals are stationed on a merchant’s website, making it easy for customers to make a payment or purchase online. Merchants or a payment processor can easily set up virtual terminals, so online businesses can accept credit and debit card and e-check transactions.

A merchant account is a business account with an acquiring bank. Without this business account, which actually works more like a line of credit, a merchant cannot accept and process credit and debit card transactions. Businesses need a merchant account to accept major credit cards via a static point-of-sale terminal, mobile card reader, or through a virtual payment gateway.

After filling out EMB’s simple online application and submitting any necessary, requested documents, many merchants get approved within 24 and 48 hours.

EMB specializes in working with high-risk merchants. EMB works with many merchants, including but not limited to businesses in these industries: gambling and gaming, adult entertainment, nutraceuticals, vaping and e-cigarettes, electronics, tech support, travel, high-end furniture, weight loss programs, calling cards, e-books and software, and telecommunications.

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