Lendio provides many loan opportunities and can get the capital to you fast. But how will you pay back the loan? This is a key question that many borrowers ask our employees. In this article, we will calm your nerves and discuss the most common repayment processes. These include Term, MCA, and ACH loans.
Term loans are the most traditional type from Lendio’s most common loan products. Similar to a mortgage or utility bill, this loan type allows the lender automatically withdraw the payments on a predetermined interval, this could be monthly, weekly, or daily. The biggest difference in a term loan is the borrower isn’t borrowing against future earnings so the borrower doesn’t have to pay back using a portion of future earnings. Borrowing against future earnings is where MCA comes in.
A Merchant Cash Advance option allows you to borrow against future earnings and get funded immediately. This is done by getting the aging reports on the borrower’s credit card revenue and judging if the applicant can repay the loan through a percentage of their credit card transactions. This is the key difference about MCAs, instead of the lender collecting a fixed amount from the borrower’s checking account each predetermined interval a third party will collect an agreed upon percentage from the borrower’s credit card deposits each interval. These intervals are most commonly every business day; this is called daily remittance.
The ACH designation really applies to how the lender is paid. ACH or Automated Clearing House refers to the lenders ability to withdraw an agreed upon amount directly from your checking account at agreed upon intervals. The alternative lenders know that you as a small business owner have a lot on your plate and don’t want you to forget a payment and thus impact your credit score. Similar to a term loan, the lenders directly access your checking account in much the same way automated payments might go to you mortgage lender or a utility company from your personal checking account. This is designed to be as seamless as possible in order to make the transactions smooth.
Overall, all loans have a withdrawal agreement between the borrower and lender for the lender to withdraw an agreed upon amount from the borrower (whether that is a checking account or credit card deposits) on a predetermined basis. This process is to ensure payment and make it so you don’t have to remember as much on a daily basis.