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Master the essential terms and options of merchant loans. This guide covers everything from merchant financing to quick funding solutions for small businesses. Learn the key business loan terms, financing types, and how to make the best funding choice for your business that would help you grow and achieve success.<br>
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Merchant Loan Guide Quick Business Funding Made Easy Master the essential terms and options of merchant loans. This guide covers everything from merchant financing to quick funding solutions for small businesses. Learn the key business loan terms, financing types, and how to make the best funding choice for your business that would help you grow and achieve success.
Annual Percentage Rate The Annual Percentage Rate (APR) of a loan is the yearly rate charged for a loan – it factors in the interest and fees to be paid over the life of the loan. An APR may also be applied to merchant financing. of a loan is the yearly rate charged for a loan – it factors in the interest and fees to be paid over the life of the loan. An APR may also be applied to merchant financing.
Balloon Payment With some types of loans, your payments are split between interest and principal. But in other cases, you make interest-only monthly payments throughout the life of the loan and pay off the principal in one lump sum payment at the end of the life of the loan. That one lump sum payment is referred to as a balloon payment.
Blanket Lien A blanket lien gives a lender the right to seize all of a borrower’s assets in the event of a default. In a vacuum, a blanket lien is very unfavorable for borrowers. But if you’re a “risky” borrower who is struggling to qualify for a loan, or you’re getting offered a much lower interest rate in return for agreeing to a blanket lien, it may be worth considering.
Collateral The term collateral refers to a business asset, such as real estate, a vehicle, or equipment, that the lender can seize in the event of a default. With collateral, you increase the likelihood of qualifying for small business financing and securing attractive small business loan terms.
Default If you default on a loan, you didn’t fulfill your obligation to repay the loan. At that point, the lender can take legal action against you, depending on the loan agreement terms.
Factor Rate A factor rate is used to express the total repayment amount on a short-term loan or merchant cash advance or other type of merchant advance funding. You multiply the loan amount by the factor rate to get the total repayment amount. For example, you have a loan amount of $40,000 and a factor rate of 1.25. In this case, you would be on the hook for $50,000.
Interest-Only Payment Loan With an interest-only payment loan, your monthly payment depends on the interest rate of the loan. At the end of the loan's life, you either pay off the principal in one lump sum payment or refinance and get a new loan.
Loan-To-Value Ratio If you’re taking out a loan to finance a specific asset, such as new equipment or commercial real estate, you should calculate the loan-to-value (LTV) ratio. This ratio represents the percentage of the asset that is covered by the loan.
Personal Guarantee If you have a new business, a bad personal credit score or credit history, or no valuable assets on your balance sheet, a lender may require you to provide a personal guarantee to get a loan. With a personal guarantee, the small business owner puts their personal assets on the line in case of a default. While agreeing to include a personal guarantee may be the only way to get a loan in certain situations, you should carefully consider the consequences.
Permanent Penalties If your business exceeds expectations, you may be in a position to repay your business loan ahead of schedule. However, some loan merchant financing agreements include prepayment penalties to compensate lenders for the loss of interest if this scenario comes to fruition. You should try to get a loan without prepayment penalties, but if the lender insists on including them, you should at least be comfortable with the penalty amounts.
Principal The principal is the amount that you borrowed for your small business, excluding interest. So, if you borrowed $50,000 to meet working capital needs, your principal is $50,000.
Refinancing If you refinance your debt, it means that you pay off one loan with another loan. The opportunity to get a lower interest rate or extend the length of the repayment period are two common reasons for a borrower to refinance a loan.
Types Of Interest Rate When borrowing money via a loan, there are two types of interest rates: fixed and variable. With a fixed interest rate, the interest remains the same throughout the life of the loan and you’ll make fixed payments. With a variable interest rate, the interest rate could change at some point – this change has the potential to impact your monthly loan payment significantly, so you should determine when and how much the interest rate will change before signing the loan agreement.
Best Practice Before Signing A Loan Agreement • Check whether the loan going to be under your personal name or your business name • Budget the monthly payments • Ask the lender any questions • Have a lawyer review the loan agreement
Types Of Business Loan SBA 7(a) Loans Term Loans Business Line of Credit Merchant Cash Advances (MCAs)
Bottom Line By understanding the typical business loan terms, you can increase the likelihood of taking out a loan that meets your small business's requirements. By Nick Perry
Why Choose Biz2Credit? Trusted partner for franchise funding Biz2Credit was founded in 2007 and has provided more than $10 billion in loans. Dedicated support team Tailored financing solutions Source – Biz2Credit
