Credit Card Processing & Your Business

Know The Process of Credit Card Processing

It can be tricky at first, but a credit card transaction has basically four stops along the way: the customer's bank, the card company that issues and backs the card (like Visa or MasterCard), a third party clearing the deal (although it might also be the customer's bank), and finally your bank to receive the transfer.

Assess Setup Costs

The upfront costs of credit card processing can include buying equipment to accept credit cards, set-up fees, or putting money into a kind of escrow called a reserve account. Most of this is sunk cost, and can set you back anywhere from $500 to three times are much.

• Many vendors will offer to cut set-up fees or discount credit card processing equipment.
• Some may charge if you choose to change your equipment down the line.

Find a Fee That Fits

Having a credit card merchant account is vital to many small businesses, but be sure you find one that is right for you. Some contracts favor businesses that process thousands of small transactions (like fast-food vendors) whereas others will be better for lower volume, high priced goods (like an antique shop).

• Consider that the per-transaction rate average ranges from 1.5% - 3%.
• Be sure to inquire about the pricing break down – while it may appear to be one, fixed price, there are a number of fees that go into it including annual fees, interchange and assessment fees, and processor markup.

Beware Fine Print in Contracts

Would you agree to eat lunch at the same coffee shop for three years? Buy toilet paper at the same store? Chances are you wouldn’t. If you're not careful, signing on with a credit card processing company could tie you into a lengthy commitment or charge you over $300 in cancellation fees.  

• Look for service cancellation fees, or long-term commitments.
• Look for monthly minimums or maximums; you don’t want to sign up with a service that requires you to have a minimum monthly processing amount if you can’t reach it.

Don’t Forget Online and Mobile Processing

Using a traditional point-of-sale (POS) system keeps you tied to one spot. However, there are a number of other options you can use to make more sales, including online credit card processing and mobile credit card processing.

• Ecommerce sites are quickly becoming a necessity, and having the right processing service in place will be critical for customer service and your finances.
• Mobile processing allows you to sell anywhere, from your bricks and mortar store to the local festival down the road. With minimal fees, you will only have to worry about a fixed swipe fee.  

Top 3 Business Loans

Start-Up Business Loans

Business start-up loans provide funds for the purchase of everything required to get the business up and running. Some businesses borrow enough through their start-up loans to pay the business' expenses for the first three-to-six months in operation.

• These loans can be secured loans on equipment and property or unsecured lines of credit for other expenses.
• Compare business start-up loans carefully. Look at interest rates, terms and the amount the lender will provide. Consider unsecured lines of credit if you’re struggling with credit problems.

Private Business Loans

When it comes to private lenders, business loans are a substantial part of their investing. This type of lending allows for borrowers to obtain money from investors, companies or others that are not associated with commercial banks. Generally, the process requires a less stringent approval process, with lower credit requirements. Some private lenders are every-day citizens.

• Obtain a business loan from a private lender locally by finding a partner or equity investor in the company.
• Third-party resources to find private investors such as Second Venture, which helps businesses build capital by connecting them to investors.

Government Business Loans

Small business loans are available through the federal government. These SBA loans are federally backed loans for a variety of business needs including start-up, real estate purchases, equipment purchases and expenses. These loans typically have lower interest rates and help millions of small businesses to start or remain open.

• Apply for a bank business loan through the Small Business Administration, the division of the federal government that provides small business loans. They offer disaster assistance loans, start-up loans, and equity capital and surety bonds.
• To receive an SBA loan, go through a commercial lender that will help you qualify for government funds.
• Some businesses can qualify for specialized economic development loans through the Economic Development Administration, which is part of the U.S. Department of Commerce.

Investments in commercial business loans often require a well-planned, professional looking business plan. Be sure your business plan is comprehensive and shows how to intent to spend each dollar of your loan; this allows the lender to see how the business will be a profitable, viable entity.

According to Biz2Credit Small Business Lending Index in March 2012, small bank lending approval rate was at 47.6%, alternate lender approval was at 63%, and loans by credit unions had a 57.9% approval rate.  Once you have figured out what type of funding your business needs, take all the steps necessary to get your loan approved.