Merchant Consumer Financing – Hits & Misses

consumerfinancingThere is no doubt that many businesses should consider offering consumer financing as part of their payment arsenal in order to maximize their potential.

Consider that less than 10% of consumers use cash or check for purchases over $1,000. Thirty two percent of consumers don’t own a credit card and 68% of US credit card holders are within 5% of their available credit limit.

Also consider that nearly fifty percent of Americans have credit scores below 660 in a lending environment where 700 is considered prime credit. So, there is no doubt a void that merchants need to fill in order to connect with these consumers. But if you are a business interested in offering financing, what are your options?


No Credit Check Accounts Receivable Financing

Pros: Great messaging to drive consumers to your business. Most successful with small transactions under $1,000.

Cons: While there are some true no credit check products out there, there is still a vetting process and in some cases, the process is quite involved. Most programs involve an income check (pay stubs required) and some require bank statements. For all programs, a checking account is required. All programs require a fairly substantial initial deposit at the time of sale. Some programs require the merchant to purchase or lease equipment. Because it’s accounts receivable financing, these programs come with a substantial discount. In most cases, the discount is passed onto the consumer and tacked onto the finance amount.

The Bottom Line: More smoke than fire. We have offered these programs for quite some time and the merchant satisfaction level is quite low. The process is complex and the approval rate is lower than credit based programs we have been involved with. With one program in particular, there is a great deal of uncertainty as to how the funds are distributed to the merchant. In most cases, the merchant must wait for the distribution of some or all of their funds over the term of the financing. For the most part, these lenders are not looking to incur more risk. They are simply looking for consumers looking to leverage their purchase. Unfortunately, this contradicts the motive of most merchants as well as consumers.


No Credit Check Lease To Purchase Financing

Pros: Great messaging to drive consumers to your business. Small initial deposit required. High approval rating. No additional cost, beyond the initial deposit, if paid within 90 days. Simple on-line process with instant decisions in most cases.

Cons: Can only be used for retail businesses on tangible products. If not paid in 90 days, the lease kicks in and the pay back can be 80% or higher. Not as transparent as it could be so some consumers face ticket shock.

The Bottom Line: This can be a powerful product for the retail marketplace. It’s fairly easy to sell the almost “same as cash” feature because most consumers believe they will pay it off in the given time frame, though few actually do. For some businesses, there is a concern over their association with the high cost should it not be paid in 90 days. We generally package this product as part of a broader offer to provide consumers with a traditional financing option for those that prefer it.


Credit Based Financing

Pros: Great messaging if highlighting broad credit acceptance or interest free or deferred interest features. Can be used for most business types, particularly powerful for homes services, medical and retail. Can finance large amounts that are not available through other programs. The longer terms mean the payments are usually more affordable. This is the most accepted financing option with traditional players like GE and Wells Fargo anchoring the marketplace for prime consumers. Most programs provide an easy on-line application and approval process.

Cons: Some programs offer a great deal of uncertainty with regards to interest rate to the consumer and discount to the merchant. Some programs require intense merchant involvement.

The Bottom Line: This is a powerful product if positioned properly. We have had a few misses in this area. We have finally put together a multi-lender platform that can accommodate consumers with prime credit and compete with the traditional lenders while at the same time, accommodate consumers that are sub-prime. We have also, for the most part, solved the certainty problem by offering fixed cost products for prime customers and merchant discount tolerance for sub-prime consumers. Also, we have learned that merchants really don’t want to be overly involved in the process, so our platform does most of the interacting with the consumer. This is the best bet for most merchants, but may not be suitable for very small businesses. And it’s really not a one size fits all.


I have been at this financing stuff long enough to now know that it is imperative to offer a broad product but understanding that we can’t be everything to everyone. We have weeded out some programs that simply did not work as promised or was too confusing for merchants to use.

While sales growth is important to almost every business, they will not trade off inconvenience for it. In other words, if it’s too hard, they will skip it and stick with what they know. The best product(s) need to fit seamlessly into their business practices.



Bob Lovinger, VP Business Development

Banc Certified Merchant Services


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