There is a great new business loan product that is gaining momentum in the financial industry. It is called an ACH (Automated Clearing House) loan, or an alternative business financing solution. It is slowly becoming as popular as the more common merchant cash advance. Typically a business owner seeking alternative financing to traditional bank loans required that the merchant process credit cards in order to be eligible. Well with ACH loans the business owner no longer needs to process credit cards. This type of financial lending can have a large impact on the economy and businesses in general simply because there are many successful business models out there that do not process credit cards yet require financing at some point or another.
A bank only ACH loan is a business loan where the money advanced is based off of gross revenues deposited in weekly or monthly bank deposits. Some lenders require a 15k monthly deposit minimum to qualify but there are some lenders beginning to surface that require smaller amounts. There are several other reasons why ACH loans are more flexible and can continue to gain momentum as a popular lending option.
Generally when applying for a business loan a traditional lending institution would require that the business is in existence for several years. However, to be eligible for an ACH loan you have to be in business for 6 months. In fact, some lenders will be flexible with that requirement as well. Also, the credit history test that so many businesses are failing when applying for a business loan is extremely flexible and easier to pass. For instance, some business owners with a FICO score under 500 have been approved. This type of flexibility was unheard of even with the most basic loan packages.
The credit history requirements are really a key factor in the growth of this lending product. Because of the FICO score flexibility business owners that have existing bankruptcies or foreclosures are getting approved. The reason for such high approval rates is because there are really good businesses out there that generate revenues and have great models and they simply went through a bad cycle. Well lenders have a great way for doing the math on risk and it appears that because there are low default rates that this was a good judgment call.
Some other fine points of eligibility for ACH loans include that the business owner not have more than 5 to 10 NSF’s or bounced payments. This establishes the consistency factor required by lenders. The ACH loan also requires a fixed or deposit based payback of 10%-40% of monthly deposits. Now although these requirements seem a little more stringent, the fact is that they can make perfect business sense for a lot of borrowers.
There are some other minor details such as a maximum of approximately 1 million in borrowing power, but overall ACH loans have the flexibility necessary in this type of economy. They are slowly becoming the premier type of business financing. There are many online lenders offering ACH loans so you can determine if they are the right business loans for you.
Sam is an expert in small business financing and has been CEO at Shield Funding for more than a decade. The company has funded more than 1000 small businesses and has been a significant contributor to the phenomenal growth that many of those companies have experienced.
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