SOURCE: Sharp Shooter Funding

Sharp Shooter Funding

February 09, 2016 12:07 ET

Paul Pitcher -- Sharp Shooter Funding -- EFT Payments and Small Business Loans

CALGARY, AB--(Marketwired - February 09, 2016) -

What is an EFT or Electronic Debit or Credit Transfer?

The Electronic Funds Transfer (EFT) is a network for processing electronic credit and debit transactions in the United States. An EFT debit transfer occurs when a business explicitly allows a third party (a vendor, merchant, or a lender) to have direct access to a business checking account to withdraw funds agreed upon. Roughly 90 percent of all electronic payments are handled through the EFT network, and include direct payroll deposits as well as electronic payments.

Many lenders, including online lenders like First Down Funding, prefer to accept business loan payments through an EFT transfer directly. If the mortgage, or an automobile payment, is pulled directly from a checking account every month, an EFT or electronic small business loan payment works much the same way.

For example, most First Down Funding term loans come with either a fixed daily (every business day) or weekly EFT payment. Repayment for a line of credit is automatically deducted on a weekly basis. While some lenders still accept payment by check, electronic payments have become increasingly common -- particularly with online lenders.

Electronic Payments are Good for the Lender and Good for the Borrower

A daily or weekly EFT debit makes sense for lenders because it reduces the costs associated with processing a loan payment, ensures that payments are made in a timely fashion, and makes it possible for the lender to identify potential repayment issues within a couple of days, rather than several weeks -- giving them enough time to try to help borrowers get back on sound financial footing and meet their commitments.

It also benefits the borrower.

  • EFT payments save the business owner money -- $1.22 per check according to electronicpayments.org
  • It is convenient for the borrower who doesn't need to take the time to write a check (particularly if the EFT debits are scheduled and automatic)
  • The regular and timely payments help build and maintain a strong business credit profile
  • Daily or weekly debits, as opposed to a monthly debit, reduces the size of EFT periodic payment making it easier for many borrowers to smooth their cash flow and avoid contributing to "lumpiness" in having large expenses due at the end of the month. Financial consulting firm Oliver Wyman suggests, "…the use of daily remittance model helps smooth the cash flow impact of the new loan for the [small business]; after all, monthly remittance introduces yet another source of cash flow "lumpiness."
  • This type of electronic direct debit makes capital available to some borrowers who might not qualify within a more traditional payment model

Making EFT Business Loan Payments Work for The Business

Millions of EFT transactions happen every day, but that doesn't mean much if the business can't make it work. With that in mind, here are three things that will help the business do just that:

  • Make sure the business has the right kind of cash flow to accommodate the periodic payment frequency. If most of the monthly revenue is attributed to a handful of customers that make payments at the end of every month, a daily or weekly EFT pull from the business checking account might not work and may disqualify the business from some loan types. This is one reason most online lenders want to see the last three or four months of bank statements. They want to make sure the cash flow will support the debit frequency (daily or weekly).
  • Make sure the business understands the amount that will be pulled with every periodic payment: A fixed payment will likely be easier to budget for. The business will also want to determine if payments are only made on weekdays or if they will also take place on the weekends. The more the business understands about the process upfront, the better the business will be able to budget and prepare for each periodic payment.
  • Make sure the business understand what happens if the business does not have sufficient funds in the account: Nobody wants this to happen, but if it does, what does that mean for the loan? Making sure there is always enough in the account to make the automatic payment needs to be a priority, but sometimes circumstances might leave a business owner short. Most of the time, the business knows before the payment is due. If that's the case reach out to the lender before the payment is attempted to try to make other arrangements.

Making payments electronically is an innovation designed to make small business loan payments seamless and easy for both the borrower and the lender. As a result, it's important to not only understand how EFT transactions work, but to understand how to make them work for the small business loan.

Sharp Shooter Funding offers a wide selection of small business loan products to help business owners throughout the lifecycle of their businesses from early stages to established businesses with rates as low as 5.9 percent for the best-qualified borrowers. Visit www.SharpShooterFunding.com to learn more about what Sharp Shooter has to offer.

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