What is Credit Card Factoring?

With the current state of the US economy, businesses are becoming increasingly concerned about their own financial situation. Many businesses depend on being able to access cash quickly and easily to keep their business running smoothly; often times in the form of a small business loan. The problem is that many lending institutions aren't lending money like they used to. Businesses are left trying to find alternative sources for their business capital. One alternative source that is getting a lot of attention lately is the merchant cash advance or credit card factoring.

What is credit card factoring?

Credit card factoring is one way to get funding to businesses that are suffering from cash flow problems. I don't have to tell you how difficult it is to keep up with vendors and other business expenses each month. Whatever the reason, an interruption of cash flow can seriously hurt the company's credit rating and cause even more problems, ultimately causing the decline or failure of their business.

Generally, a factor is either a single investor or a business that fronts money to meet the company's cash flow requirements that is to be paid back within a set period of time - much like a short term loan. There are credit card receivables, invoice receivables, accounts receivable factoring and other forms that are routinely used by businesses that tend to have cash flow issues every month or during slow seasons.

Specifically; credit card factoring is when a factor gives your company cash upfront based on your future credit card sales.

Who uses credit card factoring?

Merchant cash advances aren't cheap. Merchant cash advances aren't always the best choice for everyone. However, they are a legitimate alternative for businesses that have less than perfect credit or that need cash in a hurry. A poor borrowing history limits the places a business can go for loans and the result is either being turned down for the loan or getting a very high interest rate on the approved loan.

Some of the businesses that use credit card factoring the most are bars, restaurants, retail stores and service providers. In each case, the amount of business done with credit cards allows the investment factor to think about profit availability.

Getting an unsecured loan may be the only way a business owner can survive during tough times, but the owner should be careful because there are some less than reputable lenders out there.

A credit card factor will not necessarily look at a business owner's credit history or score as reason to decline the unsecured loan. They look at the history of steady credit card sales more than the business's credit score. And while banks may take several weeks or even months to approve a loan request, a credit card factor can approve a merchant cash advance in a matter of days.

All in all, it is a win-win relationship for both parties involved. Remember; if you do decide to use a credit card factoring company, you need to verify the legitimacy of the lender by as many sources as possible. You might consider checking the Better Business Bureau or asking for references.