If it’s too easy to get the financing, you should be concerned about what consequences could be lurking beyond receiving the money.
Let’s start with the cost of capital. When Trevor was a Mortgage Banker, he used the phrase, “The higher the risk to the Lender, the higher the interest rate.”
It’s that simple. The same holds true with business credit financing. These practically-instant approvals are very expensive. Why not slow down your approval request, find a lender willing to lend you the money and get better terms?
If you need money that fast, then you didn’t plan properly for your financing needs.
Business Plan. Financing strategies. Take time to take care.
The other reason you may apply for these terrible financing deals is because you think there are no lenders out there willing to approve you at more reasonable terms. That is simply not true.
Different lenders have different appetites for risk, including traditional bank lenders and non-traditional portfolio lenders. The problem, as we’ve seen, is that business owners often stop searching after only one or two rejections. The other problem is that the business owners don’t understand how to package their financing request in a way that is palatable to a Lender, one where the Lender feels comfortable with the risk.
In the past three weeks we’ve received half a dozen connection requests from people in the merchant account financing field. When we read their LinkedIn profiles, we noticed that they have practically zero experience in the financing field. Then there’s the real estate agent who connected with us who mentioned that she’d love to meet with us because she’s “recently begun working with merchant account financing.”
BANDWAGON: Everyone is jumping on the bandwagon to sell this type of financing to desperate business owners.
Because business owners aren’t doing the work to prepare for a more reasonable financing request process, and these “sharks” know it! They know you need quick capital and they deliver the quick turnaround. But the “blood in the water” is the horrible financing terms including incredibly high interest rates.
Let’s define what is merchant account financing:
GOOD: When you should use it.
- *Small amounts
- *Quick turnaround: cover a very, very, very short-term financing need, maybe days and certainly no more than two or three weeks (the APR is insane!)
BAD: Why you should use it only as a last option.
- *There are other quick turnaround financing options
- *Express application
- *Asset Based Lending
UGLY: Why people really wind up using it.
- *Stressed with time: no time to seek out more reasonable financing options
- No preparation with other financing options for “rainy days” such as cash reserves, a L.O.C.
- The pig in a prom dress sales pitch from these “professionals.” They’re dressing up a very nasty financing product with “skim” points that make the product sound so good.
Thus, for these reasons business owners too often accept the riskier lending options, the quick approvals at onerous terms. We’ve done MANY VLOGS & written MANY BLOGS on how to be better prepared. Frankly, we are taking the time to raise awareness so you have a much better experience with your banker.