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Does your business process credit card transactions monthly? If so, and you are in need of short term capital, consider factoring as an option. While credit card factoring is less common than factoring with receivables or invoices, it is still a viable financing option for businesses to consider. Understanding the concept, the advantages and the process is an important step for any business seeking capital to take.

What is Credit Card Factoring?

Credit card factoring, otherwise called merchant factoring, is a growing method to obtain business cash. While credit card factoring is available in a variety of businesses, the most common industry to leverage the concept is the restaurant sector. Credit card factoring offers a business the opportunity to sell their future credit card transactions. It is a reputable way for a business to receive fast cash for their credit card receivables. By working with a factoring company, the business can receive cash advances for their credit card transactions. The factoring company will require a fee per the transaction and it may take a few days up to a few weeks, but this is significantly faster than most traditional business loan methods.

Business Requirements

There are generally some criteria that the business must meet in order to utilize credit card factoring as a financing strategy. One of the first things that is a requirement is the minimum amount of credit card processing per month; typically this amount is some where between $3,000 and $7,000 per month. Also, many credit card factoring companies will also want to review a history of credit card transactions to see a viable trend and will prefer to work with established businesses, not businesses that have only been operating for a year or less. Also, businesses that are operated in the home are generally not eligible for credit card factoring.

Advantages of Credit Card Factoring

There are a variety of reasons as to why a business would want to leverage this financing option, including:

* The business can utilize the funds from the transaction for whatever purposes they desire. Some business loans are restrictive in the methods that the financing can be utilized, creating an interest among many business owners to have a more flexible option.
* The strategy is virtually available to any business type and any business that accepts credit card payments.
* It is a short term loan program, paid back quickly through standard credit card payments that the business receives.
* Businesses don’t have to place collateral in order to receive the financing.
* Quicker payment receipt for credit card transactions, allowing the business to pay for invoices, payroll or other expenditures quicker than waiting for the merchant services payment as well as to be advanced an amount based on the typical credit card activity for the business.
* This financing strategy is invisible to customers.
* A business or personal credit score is not often required as the loan is based upon the average credit card transactions for the business.
* It is a vital cash management tool for small businesses.
* Businesses have the opportunity to borrow as much as $300,000 and more from this strategy.

Credit Card Factoring- The Process

If your business is ready to evaluate credit card factoring as an option, the first step is to pull data from your merchant services account. You will want to review at least 3-6 months of your business’s credit card activity. Look for patterns and look for the averages. Once you have this information readily available, you will need to search for a credit card factoring company. While there are a number of factoring companies available, they don’t all specifically work with credit card factoring.

As you create a list of possible companies to work with, be sure to have a list of questions to ask each one. Be sure to ask each company which credit card companies they will factor, what percentage they offer up front and if there are any restrictions. Look for the fees that are charged per transaction, determine the amount of time that it will take to fund once you have submitted to them your company’s information, look for and read past customer reviews, read the fine print of the contract and request to speak with someone directly. As you compare companies, you will be able to select the one that offers the pricing, turn around and services that your business needs.

Once you have selected the company that you are going to work with, most credit card factoring companies will actually begin to manage your credit card processing systems to ensure that they are paid back. What this means is that the money coming into your business via credit cards will go to pay back the factoring company directly as they collect on their advance. This process is simple, easy to set up and automatic which makes this a beneficial process for both the business owner and the factoring company.

If your business is seeking short term capital, consider credit card factoring to leverage the assets that you already have. By doing so, you will be able to quickly access the much needed cash flow for your business without going through the hassles of traditional financing.

If you currently have a business or you are considering starting a business, establishing business credit is a good idea. According to the National Association of Credit Management (NACM) small business owners should take steps to establish credit in the name of their business as a way to preserve cash flow for necessary business operations, purchases, and rental payments. Here are a few basics to begin building business credit.

Separate Your Business Credit from Personal Credit

Business credit can and should be established separate from personal credit. When business owners use their personal credit to obtain business credit, they run the risk of lowering their personal credit scores. The business owner also risks being personally responsible for business liabilities. If you file bankruptcy and your personal and business credit are one in the same, you stand to lose everything. Business credit protects your personal assets.

No Personal Guarantees

The most important element to establishing business credit is finding lending institutions, credit card issuers and vendors that will establish business credit without you giving a personal guarantee. A personal guarantee involves using your personal credit information to guarantee repayment of the debt incurred by the business. In other words, you are obligating yourself to be 100% responsible for the business debt. It may be your intention to fully repay any debt incurred by the business; however, obligating your personal and business assets to repaying business debts can lead to financial ruin if any business setbacks occur.

Business Structure

Doing business as a sole proprietor will not allow you to distinguish your business credit from your personal credit. As a sole proprietor you may be “doing business as”; however, you are not a separate business entity. In order to establish business credit without a personal guarantee you must structure your business as a separate legal entity such as a corporation or limited liability company. Even if you have been doing business as a sole proprietor for years, you can restructure your business into a separate legal entity. Besides, it is a better choice to set your business up as an entity separate and apart from you. Your business could get sued and if all of your assets are tied together, financial ruin may be lurking in the background. Having a separate entity protects your personal assets.

Tax Identification Numbers

Your business entity must have an Employer Identification Number (EIN) also known as a Federal Tax Identification Number (Tax ID). The EIN is your permanent number and can be used immediately for most of your business needs, including opening a bank account, applying for business licenses and establishing a business credit file. Never use your social security number. It may also be necessary to establish a State tax identification number. For the federal tax identification number you can apply online at www.irs.gov. The application process is fairly simple and you can receive the EIN immediately.

Business Checking Account

Your business entity should have at least one bank account, in the name of the business, that can be used as a bank reference. The older the bank account, the better. Having a business checking account helps in establishing your business identity and reputation. Banking relationships are still important in the business world. Building a strong relationship with your bank can be of assistance when you begin to seek business financing.

Get a Business License

You must always register your business and obtain a business license in the State, County or City where you conduct business. For some reason, this is not always done by businesses. It should be at the top of your “to do” list. Always register your business in the jurisdiction where you conduct business.

For a step-by-step process for building business credit please visit: www.rebuildcreditscores.com/Business_Credit.html