What is Credit Card Factoring?

Although it is somewhat less common than accounts receivable factoring, credit card factoring can still be a great way for a business to get the money that they need.

In most cases, credit card factoring is used in the restaurant industry.  As the name implies, credit card factoring allows your business to sell its future credit card transactions.  By doing this, the business can receive a cash advance for those transactions.  Depending on the size of your business, you may be able to receive an advance up to $120,000.  In most cases, it takes approximately two weeks to receive the advance (when compared to the amount of time that it takes to secure a loan, this waiting period is extremely short).  Once you receive the advance, you can use it for anything that your business needs (whether its renovating your restaurant or buying new equipment for your kitchen).

When choosing a factor, you should be sure that they only charge a reasonable (1 to 5%) service fee for the advance given (in addition to paying back the advance).  If a credit card factoring company tells you that you will need to pay an application fee or closing costs, you should avoid doing business with them (since there are so many quality companies offering credit card factoring, you don't need to deal with factors that try to squeeze extra money out of you).

For a restaurant that is interested in engaging in credit card factoring, there are usually three criterion which must be met:

-The restaurant must have been operating for over one year
-The restaurant must process at least five thousand dollars in credit card transactions each month (this number may be higher or lower depending on the factor)
-The restaurant must have more than one year left on its lease

If your restaurant mets all three of these criterion, credit card factoring may be the ideal solution to expand your business while minimizing the amount of risk involved.