ACH stands for automatic clearing house and is sometimes called an ACH advance, ACH line of credit, or ACH cash flow loan. It is a popular way to get quick funding for small businesses since it does not have strict requirements unlike traditional bank loans.
An ACH loan is based on your ability to consistently make revenue instead of your credit history. Although it is a great short-term financing options, it does have its setbacks. Read on to learn everything you need to know about ACH loans from how they work, their benefits, and some drawbacks to make note of before you apply.
When you apply for an ACH loan, the lender considers your company’s checking account balance, rather than your business credit. If they see that you qualify, the lender withdraws loan payments straight for your business bank account.
There is no minimum credit score to qualify and having collateral is not necessary to qualify. This is a great funding solution for those who have poor credit or are lacking business history.
There are benefits for both the borrower and the lender when using an ACH business loan.
Pros of an ACH business loan for borrowers include:
Pros of an ACH business loan for lenders include:
The cons to ACH business loan, include:
As previously mentioned, the process for applying for an ACH loan is an easier process compared to traditional business loans. The following are examples of the items you will need to have when you are applying.
In addition, lenders consider a company’s future cash projections and review cash flow statements to see the average daily balance of the checking account. Your application is more likely to be approved if the lender is confident that you will be able to repay the loan back.
If you find that you have poor credit, there are other financing options you can consider that will work better for you such as, invoice financing, equipment loans, business credit cards, and short-term lines of credit.
After reading the information above, you might still need to consider the following before you apply for an ACH business loan.
There are many options for financing you can consider. Make sure you have a plan and have all the information you need to know about the types of business loans available and determine which one will best suit your business. No matter which route you choose, make sure you borrow responsibly.