What Credit Option is Best for Your Business?

May 03, 2018

Running a business is all about balancing money in and money out with the ultimate objective of generating maximum profits. However, due to delayed customer payments and frequent expansions and restocking, it is normal for a business to need more capital than it can afford from time to time, which calls for the borrowing of business funds. While credit has always been associated with bad management habits, this is not necessarily the case especially for startups as well as older businesses.

In fact, Herbert Hoover, the famous former American president and great businessman reminds us that credit is the lifeblood of business, the lifeblood of prices and jobs. With the right plan and strategy, knowing how to establish credit is actually a blessing for businesses that seek constant growth. Your personal and business credit scores, the age of the business, its profitability, amount of financing you need and what you need it for are the main factors that determine whether your business qualifies for a loan. It should be noted that there are a variety of credit options for businesses at different stages of existence. Different credit options vary in terms of the interest rates they attract, their risk and how much they are willing to lend. Let’s discuss some of the most common options for the different stages of a business.

Business Line of Credit

The business line of credit option is suitable for smaller businesses, preferably startups. It involves the lender providing the business with credit up to an approved limit within a predefined period. It can be borrowed all at once or in small portions within the period, which makes it great for startup funding. The two common types of line of credit borrowing include unsecured business line of credit, which is perfect for startups that have no collateral to offer, and secured line of credit for businesses that have collateral such as real estate or business assets to offer as guarantee for repayment.

Since secured line of credit is low risk, the probability of borrowing a higher amount of money with flexible repayment terms and lower interest rates increases. On the other hand, the high-risk unsecured line of credit offers loans that do not exceed a limit that is calculated based on your business performance or past repayment statistics. They are known to attract higher interest rates than the secured line of credit. Business credit is the preferred credit option by the Small Businesses Administration (SBA) for funding of small businesses that require convenient repayment terms.

Business Credit Card

In this contemporary era, owning a credit card is a necessity for both individuals and businesses. Given its quick access to cash, a business credit card offers great flexibility and convenience in terms of funding your business whenever needed, and you may earn rewards such as miles, cash back and points for every use. To qualify for a business credit card, your personal and business credit score should be in good shape. Business credit cards fall under unsecured credit, thus attract higher interest rates than normal bank loans but due to their faster access to cash, they are best suited for startups and businesses that don’t have a predictable cash flow yet. Repayment of credit card debt is more flexible as compared to the line of credit option.

Business Growth Term Loans

Growth term loans, simply referred to as term loans are ideal for businesses that have been in operation for at least 9 months. With these, you can borrow a fixed amount of capital and repay it over a period agreed upon by the lender. Generally, the amount of money you can get from term loans is much higher than the other business credit options and depends on your business’ credit score. Interest rates are flexible and will mostly depend on the repayment period you choose. Since the sum awarded from this credit option is large, it is best for businesses to capitalize it in long-term investments with high returns in the end. Application for term loans may require collateral or the business itself may serve as security for loan repayment.

Merchant Cash Advance Loans

One type of loan that is gaining in popularity is the Merchant Cash Advance loan. This is a type of loan which looks the the performance of a business over time, rather than simply considering personal circumstances. Payback for this type of loan is much easier too, as payments are automatically taken from a credit card and there is no fixed monthly payment. Merchant Cash Loan handlers will automatically get paid when you do, so it takes the worry away.

A positive cash flow is essential for any kind of business to flourish. Without seamless cash flow, payment of employees, suppliers and utility bills as well as restocking will prove difficult. This is why business financing and credit is necessary whenever the business requires more funds to cater for these needs. With the credit options discussed above, it is clear that any business has the ability and opportunity to run smoothly, for as long as their credit score is good and they maintain constant repayment of their business loans. It is also important that the credit is used in cash-generating ventures rather than quick decisions that have not been thought out analytically.

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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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