What are Merchant Loans?

Merchant loans are lending instruments that many businesses, large and small, qualify for. They work differently than other small business loans. This lending tool is generally presented as a cash advance for businesses and is not regulated in the same fashion as other business loans.

Features Of Merchant Loans

In many cases, merchant loans do provide some beneficial features for businesses. This type of funding source has these benefits:

  • Easy approval process – Merchant loan approval is generally based on the incoming credit card receipts a company enjoys on a monthly basis. Perfect credit and a lengthy approval process are not typically part of obtaining merchant loans.
  • Simplified repayment – Since merchant loans are “cash advances,” the repayment process tends to differ. Generally, merchant loans are repaid directly through incoming credit card earnings. The lending company will take a certain percentage off the top of daily sales until the advance is satisfied.

The Cons Of Merchant Loans

Although merchant loans can prove much easier to obtain than standard small business loans, they do pose some problems. The rates and fees attached to this type of funding can be high.  The loans have introductory rates, but can climb as high as 50 percent interest.  A business should attempt to pay off the debt as quickly as possible.