Learn how Good and Bad Consumer Financing is for small businesses

Understanding Different Loan Types

Many big businesses are providing business financing for customers. Like if you go to purchase a car and want to get it through financing, then car manufacturers will provide you with financing services then and there. You won’t have to run anywhere for financing. Business financing for customer is applicable at the big stores, mostly big chains, where the business sells home furniture or big electronics. 

But consumer financing is not just for large businesses, but small business offers financing to customers as well. Even if you have a small employee size, you can deliver consumer financing if you think about to use third-party consumer financing for businesses. Well, this doesn’t mean that you can’t go for in-house finance later. But the reason why third-party customer financing for small business is fine is because it is an effective way to start. It makes a great impact and lets you have a good introduction to you about the industry. You may become familiar with it and make the best decision for your business in the future.

Following are some cons and pros that you can consider before making a choice.

Pros:

Here are some pros that come under customer financing for small businesses for third-party:

  • Employee Size: There is not a need for you to expand the staff size. You do not need to recruit people because it is third party consumer financing for business, and this feature doesn’t require businesses to employ more people. If you run a small business, you already know well about finding the person who fits in for the job. 
  • No worrying about the details: Third-party customer financing for small businesses makes you less worry about work details. Like you do not need to do credit checks. If you have in-house financing, you will get to take care of many things like – setting up from the very start. You will also need to have application forms, understand how to run checks for credit, figure out the risks to take, and supply the customer with the credit they need for the purchase. All this can be avoided with third-party finance, and you do not have to get worried about any of these things. Anything you’ll be required to do is sending the consumer to that particular finance company, and then the company will do the rest. 
  • Legal Compliance: When we talk about lending the money, legal issues always come from behind. If you are in the United States, then you need to understand the laws that might otherwise affect your working. You also need to get an understanding of multiple laws if you are operating an online store. The laws keep changing, so you can’t just set up the process and leave it to be. It would be good if you let a third-party financing company worry about the laws.
  • Less worries for cash: Business is something you need to keep investing in. If you have good inventory that could increase sales, there would not be a reason to think about healthy cash flow. 

Cons:

Below are the cons that come under customer financing for small businesses for third-party:

  • Financing company’s reputation plays a significant role: When you recommend a third party company for financing to your customer, they may not like it. Look for the company that provides consumer financing for merchants. If the company turns out to be a fraud or somehow not good, its bad reputation will also affect your business reputation. 
  • Bad experience customers might not return: Even though customers tend to understand the finance company’s functioning and how it has nothing to do with yours. But there is always a chance that if they get a bad experience due to poor business financing for customers, the customer might not come back to you.
  • Customers will blame you for a bad shopping experience: We often miss noticing things, which is why a portion of the customer base will think there is no difference between the third party and you. If something goes wrong, then the blame is likely to fall on you. They might even go online and posting things may lead your business towards a bad reputation.
  • Revenue sharing: Third-party consumer financing for small business do not provide services free of cost. Additionally, to keep the consumer’s fees and interest for the loan, most of these will also want you to pay them for their services. The margins you set could be high so choose the customer financing programs for small business very wisely.

Long-term contracting: There are many small business offering financing to customers. Few financing companies for small business may require you to sign up for long term contracts. You’ll must take care of all the possible penalties if you need to terminate the contract earlier. Make sure not to get linger with a company that won’t work according to you as long as it is really necessary or urgent.

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