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Updated on Tuesday, September 1, 2015
While most “traditional” small business loans are based on factors such as credit, cash flow, and number of years in business, ForwardLine does things a little differently.
It’s a unique small business lender because the loans largely predicated on monthly credit card sales. Unfortunately, this disqualifies businesses that don’t process cards, but it provides an interesting opportunity for those that do.
Details of ForwardLine’s Merchant Loan
ForwardLine calls its small business loan a merchant loan because it’s based on credit card sales volume.
However, this loan is not a merchant cash advance (MCA). The difference is MCA’s are based on the future credit card sales of a company. A percentage of those sales are taken as payment on an ongoing basis until the loan is paid back. For that reason, there’s no repayment term for an MCA; lenders are essentially betting that companies will continue to be profitable. If they’re not, then payments can’t be made.
With a merchant loan, you have a repayment term and a fixed monthly payment amount. Payments are taken from your business bank account. Additionally, you aren’t required to change credit card processors, whereas with an MCA, you are.
However, if you want to pay by a percentage of your credit card sales through the merchant loan, you can. You choose the repayment option at the time of funding.
Let’s get down to the details. You can borrow anywhere from $5,000 to $2,000,000 on terms of 6, 9, and 12 months. In some cases, businesses can qualify for a longer term up to 15 months, but the 12-month term is the most popular.
The fixed fee for these loans starts at an interest rate of 8.99%. Shorter terms have lower rates. How does this translate into an APR? A loan with a fixed fee for 12.99% on a term of 12 months would be around 26% APR.
It’s worth mentioning that ForwardLine guarantees it has the lowest rates you can find, and if it can’t match a similar offer, it will give you $100. It’s also a direct lender – you won’t deal with any brokerages or middlemen during the funding process.
Pros and Cons of a Merchant Loan With ForwardLine
Pro: ForwardLine says it focuses on shorter repayment terms to avoid “unnecessarily long” ones. Since loans start at $5,000, this seems reasonable, but some businesses may not be able to pay back larger amounts in such a short amount of time ($100,000 over 12 months, for example). This is both a pro and a con; the plus side is, you’ll pay less in interest over the life of the loan with a shorter term, and ForwardLine offers a discount for early repayment.
Con: The biggest con is you need $3,000 in monthly credit card sales to qualify for a merchant loan. If you don’t process credit cards at all, or tend to do so on a less frequent basis, you won’t be able to obtain this type of loan.
Pro: ForwardLine guarantees having the lowest interest rates and backs that guarantee up with $100 if you’re able to find a better deal.
Con: ForwardLine focuses on the amount of stability a business shows rather than typical factors like cash flow and credit. That could mean your chances of getting approved for a loan are lower if you own a seasonal business that isn’t doing a ton of sales right now.
Pro: ForwardLine has been around for over a decade and has an A+ rating with the BBB. It was the first lender to ever make a merchant loan back in 2003. It offers same day approvals and next day funding if you need the cash quickly. The online form only takes about 3 minutes to fill out. On average, approvals take about one business day.
Con: There is a flat $275 origination fee on loans less than $15,000. The fee is $550 for loans above that amount. However, most small business loans have origination fees ranging from 3% to 5%.
Who Benefits the Most From a Merchant Loan With ForwardLine?
Businesses that have a greater amount of credit card sales will benefit from this type of arrangement. Typically, that means those in the retail industry, though it can apply to service-based, hospitality, and food industries as well.
In an interview, CEO Craig Coleman stated the average business ForwardLine lends to have between 6 and 12 employees, approximately $1 million in annual sales, and an average of 12 years in business.
You can choose to use the funds for expansion, debt consolidation, working capital, an equipment purchase, or to help with cash flow.
It doesn’t take much to qualify for a merchant loan with ForwardLine. You must have one year or more in operating history, and process $3,000 in credit card sales per month.
Loans aren’t offered in Nebraska, North Dakota, Rhode Island, South Dakota, Vermont, or the District of Columbia.
There’s no minimum credit score specified, and ForwardLine states on its site that it’s not a FICO driven lender. The stability of your business matters much more, and a large part of that is your sales history.
Consequently, the biggest factor for how much money you’re eligible for is based on your credit card sales. To give you an idea of how much you might qualify for, ForwardLine’s website states, “The maximum financing amount we fund is typically 2x your average monthly credit card sales.” Look through your last 3 to 6 months of credit card statements to get a good average, or 12 months if you’re a seasonal business.
How much interest you’re charged also depends on your industry and time in business. ForwardLine doesn’t have too many industry restrictions, but wholesalers generally don’t qualify because their sales aren’t consistent.
Application Process and Documents Needed
If you’d like a quote, ForwardLine has a short and simple form that takes about 3 minutes to complete online. If you have over $3,000 in monthly credit card volume and have been in business longer than a year, you’re already pre-qualified for a loan.
After submitting your form for a quote, you’ll get a credit decision within 10 minutes. If approved, you’ll hear back from a representative as they need to verify the information you provided.
At the very least, you should have your last 4 months of bank or credit card statements ready, as next day funding is available provided you can submit all the requested documentation. You’ll also need your driver’s license and a voided check to complete the process.
The Fine Print
ForwardLine doesn’t charge any late fees, although there is an origination fee of $275 on loan amounts below $15,000, and $550 for loan amounts above $15,000.
Additionally, specific collateral isn’t needed to secure the loan.
Other Alternative Lenders
ForwardLine is unique as not many other lenders give you the option of repaying your loan through credit card sales or your bank account on a daily basis. Other lenders require monthly, biweekly, weekly, or daily payments solely made through your bank account.
If you’d rather go with a traditional small business loan, there are plenty of other lenders out there to apply with.
Bond Street offers loans from $50,000 to $1,000,000 on terms of 1 to 3 years, with APRs starting at 8%. You need 2 or more years of operating history and $200,000 or more in annual revenue to qualify. Bond Street doesn’t loan in South Dakota, Nevada, Vermont, or North Dakota. The minimum credit score you need to qualify is 660.
Swift Capital has loans on shorter terms. You can borrow $5,000 to $500,000 on 3 to 12 months with pricing as low as 9.9%. You can get funded in 1 hour if you request $10,000 or less. Swift also promises to have the lowest rates on comparable loans or you’ll receive $500. Daily and weekly repayment options are available. To qualify, you need at least one year in business and $5,000 in monthly revenue.
The Bottom Line
As a small business owner, your time is valuable. You want to find the most affordable loan that will allow you to expand and profit. While small business loans are more expensive than traditional bank loans, the convenience and speed of the funding process makes online lenders attractive. Just don’t pull the trigger too early. Spend at least a few hours calling or applying with several lenders to see who can offer you the best terms and rates. As long as you shop around within a 45 day period, all the credit inquiries that occur during that time frame will count as one single inquiry.