Comparing the Benefits of Business Loans and Merchant Loans

Both business loans and merchant loans have benefits and drawbacks associated with them. As a business owner, you will most likely need some financial assistance along the way. Business loans and merchant loans can allow you to gain the financial help that you need. However, depending on your current situation, one might be better for you than the other. Here are a few things to consider about each type of loan.

Business Loans

Business loans can be obtained through any traditional lender. There are many loan programs that can help you get the money you need. When you apply for a regular business loan, your credit and business history will play a large role in your ability to get the loan. They will look at your personal credit score or the credit score of the business. In most cases, you will have to have a good score with one or the other in order to get approved. 

Most lenders will also require you to have some successful history in business as well. They will typically want to see that you have at least two to three years of successful business history. If you cannot provide them with this business history, there is not a very good chance that you can get the loan. 

If you do not meet their criteria for the loan, you might have to get a cosigner to get the loan that you need. You may or may not have access to someone that has good enough credit to borrow the amount of money that you need. Therefore, this option is not available for everyone.

The terms of a traditional business loan will require that you make a monthly payment to service the loan. Some loans might include principal and interest, while others might be interest only. 

Merchant Loans

There are many types of merchant loans out there for your potential use but one of the most popular types includes using your credit card machine. A merchant loan company will come in and work out an arrangement with you to utilize your credit card terminal. 

You will determine upfront how much money that you need to borrow. They will give you the money upfront in a lump sum just like a regular loan. They will process the credit card transactions for you through their designated network. Each sale that goes through the credit card machine will pay back a small percentage of the loan until the agreed upon amount is reached. 

The major advantage of this type of strategy is that you do not have a monthly payment. The loan company is only paid when you get paid by someone. You do not have to consciously make a monthly payment as the payment is slowly sent to them one transaction at a time.

The drawback to this method is that the interest rates that are charged are much higher than you could get with a bank loan. However, those that use it are often not approved by the bank and it is their only alternative.