Why do you need to have a merchant account for your online business?

A question that haunts anyone who is planning to sell his/her products or services on internet is the mode of receiving payments from buyers sitting in another city, state or country. The best and the quickest option is to accept payment through credit or debit cards. There are other alternatives but none as quick and as convenient as this one. Online shopping is all about convenience and speediness, if the buyer has to wait for days before the payment arrives into seller’s account so that he might be able to dispatch the products. Such a lengthy turnaround time destroys the whole advantage of online shopping. In view of that, when you are setting up an online business, you must arrange for a merchant account to be able to accept payments through credit/debit cards. Asking your customers to send checks or money orders just doesn’t fits in.

Merchant Account is a type of bank account that makes it possible for account holder to accept credit card payments from his/her clients. In other words merchant account provider is a service that allows business owners to accept payment via credit/debit card. Though in most cases, you’ll not be dealing directly with merchant account providers, especially if you are a small or medium-sized business. However, the idea is to be able to accept credit card payments, be it through Merchant account providers, Independent Sales Organizations, Payment Processing Companies or Payment Gateways. Let’s take a look at how payment gateways or third party merchant accounts can help you in this regard.

Payment Gateway:

If you are an online business, you must sign up with a payment gateway service. Payment gateway allows you to offer an easy solution to your customers to make on the spot payments. The process starts from customers clicking on the “pay now” button and the whole transaction takes not more than 4 – 5 seconds (even though there’s a lot of data transfer taking place at the backend that includes various parties validating the process).

Third Party Merchant Account:

Third party merchant account is the most convenient and also the most commonly used medium by small businesses. Third party merchant account services serves the same as the traditional merchant account, however the prices differ. Third party merchant account typically cost less than the original merchant account when it comes to setting up an account; however the transaction fee is significantly higher. Some examples of third party payment processors are PayPal or 2co.

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Types and characteristics of consumer loans

Banks normally thrive on the loans and services they provide to businesses. For example, offering funds for new businesses or expansion of some existing business, managing inter-city or international transactions involving large sums, or offering financial advice, etc. However, no bank can completely ignore the individual consumers, as they constitute a large part of the market and are considered an important source of funds for the banks.

With the passage of time, more and more individuals have shown interests in lending from banks, they'll seek loan for a small home-based business, go for a loan for house construction, or even knock at the door of bank when they need a brand new car. Consumer loans differ in sizes and characteristics, ranging from long term huge mortgage loans to small loans taken out for shopping through credit cards.

Consumer loan is different from business loan in many ways. Even though the business loans are borrowed by individuals as well, but people tend to think differently when borrowing for the business as compared to the borrowing for personal use. Consumer loans are thought to be the more risky ones than business loans because individuals defaults (fails to payback) more often than the businesses, that's why consumer loans normally have higher interest rates than the business loan. Also, consumer loan mostly has fixed interest rate.

Different types of loans:
Consumer loans can be divided into different categories. Some commonly known types are …

Credit Cards:
One of the most widely used forms of consumer loan; Credit cards have got such a huge user base because of the convenience factor. People use it for shopping at large retail stores, dining out in restaurants or at petrol pumps. Best thing about these loans is that consumers can avoid the interest altogether by paying back shortly after the transaction, otherwise a small percentage is added into the basic amount on monthly basis as interest.

House Finance or Auto Loans:
Another very important type of loan, house finance or mortgage has helped many to be in possession of their own house. Auto finance is a loan that succeeds in the time of economic growth. However, both of these loans are subject to manipulation by dishonest parties.

Installment vs. Non Installment Loans:
Installment loans are relatively smaller loans which the borrower is required to return in monthly installments, whereas non installment loans are needed to be paid off in a lump sum after a fixed period of time. Most of the time consumer loans fall in “installment based loans” category.

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Things to consider when taking out business loans

Starting a business is an exciting experience except for the time, when you get to the stage of acquiring business loans. It's another thing to be all excited about your business idea, but to transmit this excitement into someone else and making the investor believe in your idea as much as you do is something else. And when the person in question is a banker or venture capitalist, the job becomes even harder. Acquiring a business loan for an established business is relatively easy and it should not be a problem if you are maintaining a good credit history. However, the success rate is significantly low when we talk of business startups going out in search of loans. Ironically, they are the one who need it the most.

Critically review your idea:

Before going to the bank or any other traditional lender, scrutinize your business idea from all perspectives. Understandably, you'll be a little biased towards your own idea, for you that's nothing but perfect, but try to think from a third party viewpoint. Are their any statistics, which you can turn up to support your idea? Does your idea complement some ongoing market trends? Are you going to offer some product or service that's already in demand? Better discuss your idea with some of your friends or relatives to get some neutral comments or reaction. More often than not, you'd get some off-putting reminders, try and come up with the counter arguments or plans.

Make a Business Plan to present your case:

You need to present a comprehensive but concise, and fully documented business plan. It will help the banker to understand the prospects of a business, a well thought out plan also represent you as a person who is capable of running a business. The business plan should clearly explain the growth potentials with the help of facts and figures. If you are seeking loan for a business startup, your personal credit history should be clean, because more often than not you'll get a loan on the basis of your personal net worth and guarantee. You can strengthen your case by coming up with estimated Balance sheet or cash flow.

Another thing that will strongly go in your favor is your experience (if you have any) of working at some high-level position at a company that relates to the business you are willing to do. It amplifies that you know the trade secrets and the market for this business.

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