Underwriting Unsecured Financing for Businesses That Don’t Accept Credit Cards

Despite the inconvenience to customers and considered an archaic practice by 2014 standards, not accepting credit cards as a small business has its benefits. For certain, these merchants avoid the possibility of massive credit card security breaches like those at Target along with the public flogging and embarrassment of Congressional hearings.

But if these businesses seek to finance their operations in an expeditious manner other than through existing cash flow, they might run into some roadblocks. As credit underwriting for small businesses has become more technology-enabled and automated, lenders and alternative finance companies have more access to multiple forms of payment data than ever before. This data includes read-only records of debit and credit card merchant accounts, state and local sales tax collections, and shipping records from UPS or Fedex. Thus it stands to reason that a business that doesn’t accept credit cards, for which these data points may not be readily available, might have difficulty proving creditworthiness to a financing partner.

In the case of a merchant cash advance, where a business sells a portion of its future revenue at a discount, working with such a business was unlikely. Until recently, if a small business did not have a credit card merchant account to verity daily receipts, it was all but shut out of this financing channel.

For example, if a restaurant needed working capital quickly, it might sell $60,000 of future revenue for $50,000 today, with the advance provider using the owner’s FICO score and daily credit card receipts as underwriting criteria. The advance provider would then sweep a percentage of the restaurant’s merchant accounts daily until the $60,000 was repaid.

In a prior era (i.e. a few years ago), this process was logistically cumbersome for the merchant, its customers and the advance provider itself. Often times the merchant would have to switch to a different credit card/POS terminal, which might take a day or two to ship. If there was trouble installing the new terminal or getting it online, it would only disrupt the flow of business further. In this case, the merchant probably wishes he didn’t accept credit cards at all.

Suppose the business in question though, was not one that processes a lot of smaller transactions per day like a restaurant, but rather a building contractor or a medical practice, where payments are more spread out and not made using credit cards. This payback protocol would not work.

Now, software and technology have improved to the point where payment systems can more easily utilize ACH systems without the inconvenience of installing the aforementioned bulky, if not faulty, hardware. In the case of businesses not accepting credit cards, advance providers can now verify the daily health of a business’ periodic deposits through read-only access to business checking accounts. Instead of being bound to an inflexible system of paying a fixed percentage of daily credit card sales, business owners seeking advances can set up periodic fixed debits that better suit the nature of their cash flow.

Even as consumers continue to make more purchases with credit and debit cards and mobile devices (and using the mysterious and controversial Bitcoin), some business owners will continue to follow the mantra of cash is king. Thankfully though, technology has allowed them to access credit from providers that would not have previously.


About MCC

Since 2005, Merchant Cash and Capital, LLC has been one of the nation’s business cash advance funding leaders. MCC has provided more than $635 million in financing to over 13,000 businesses nationwide. For more information about Merchant Cash and Capital’s unique funding programs, visit online or call 1-866-792-9366.