The Power of ISO Lending for Business Funding
Businesses have a wide range of lending options to help them survive and thrive across diverse economic climates. And while traditional bank loans can still meet many companies' needs, other small and medium-sized businesses find themselves looking for faster, more flexible options.
That's where ISO lending comes into play, operating as a convenient intermediary between business owners that need capital and the funding companies available to provide it. ISOs make it easier for business owners to get the financial support they need when they need it, even if they have less-than-perfect credit. So whether you're a young tech company in California looking to expand or an e-commerce business in New York seeking a safety net, working with an ISO could be the answer you've been looking for.
But what exactly is ISO lending, what options does it open up, and how can it help your business survive and thrive? Keep reading to find out.
What Is ISO Lending?
An independent sales organization (ISO) is a third-party company that serves as the middleman between business owners and financial organizations. ISOs maintain partnerships with alternative lenders and other financial institutions in order to offer lending services.
If you work with an ISO, they can help advise you on which lending opportunities are available and which might be best for your business’s needs.
Common ISO Lending Solutions and Services
ISOs connect their borrowers with a range of financial products and services. Here are some of the many lending options your ISO may provide:
Merchant cash advances (MCAs): A popular form of alternative lending, MCAs work well for businesses that receive the bulk of their income through credit card processing and have high sales volume. The business owner receives an upfront sum in exchange for a percentage of future credit card sales.
Invoice factoring: With invoice factoring, businesses can sell their unpaid invoices to a third party, receiving a percentage of the invoice value upfront (usually 70% to 90%) and the remainder once the debt is collected by the factorer, minus agreed-upon fees.
Term loans: ISOs often offer access to more traditional term loans that are repaid over a set period of time. These feature fixed payment amounts and may have more extended repayment periods than other financing options.
Business lines of credit: A business line of credit is a type of revolving credit. A business owner is given a credit limit, and they can withdraw as much as they need up to that amount, and they’ll only pay interest on what they’ve withdrawn.
Working capital advances: These short-term loans provide businesses with a lump sum to cover working capital needs and are paid back on a daily, weekly, or semi-monthly basis.
Each option has its own pros and cons that must be considered based on a business's history, industry, funding needs, cash flow, and credit history. Many ISOs can provide access to financing options not on this list; their available options depend on their existing partnerships with lenders.
Because ISOs are third-party entities, they can also provide other services, such as:
Merchant bank accounts
Equipment sales/leasing
Fraud prevention
Business analytics
Customer support
Pros and Cons of Working With an ISO for Lending
The pros of working with an ISO partner extend beyond the wide range of financial products and services outlined in the previous section. Borrowers also get the following:
Faster approval: The application and approval process can be faster through ISOs than traditional bank loans.
Faster funding: Small business owners can get their funds quickly since there's no need to approach multiple lenders.
Expert advice: ISOs provide excellent customer service and can give advice on which financing option to choose.
Greater flexibility: ISO lending options are typically more flexible than traditional solutions and have a wide range of repayment structures.
However, no one financing option fits the needs of every business, and even with the multiple financial products and services available, ISO lending is no exception. It's not the right fit for every SMB, and it's important to do your due diligence. Here are some things to consider:
Cost: Businesses can receive competitive pricing with well-regarded ISOs, but the financing will still likely have higher rates than business loans obtained through a bank in most cases.
Terms: Every ISO is different, and it can be important to carefully review terms to avoid costly contracts or those that are difficult to get out of.
Reputation: Just as you would with a traditional lender, business owners must research different ISOs. Look for one with a good reputation and a history of reliability.
Repayment: Most ISO lending revolves around short-term repayment plans instead of longer-term options like traditional bank loans that can take several years to repay.
Requirements: Some lenders that ISOs partner with may require businesses to have an established history and to have been operational for a certain period, which may limit lending options for startups.
The ISO Lending Process
If you're the owner of an SMB and you'd like to obtain capital through an ISO, it helps to know what to expect before you begin. Sure, you've heard that working with an ISO is typically more efficient than securing traditional financing options, but how do you go from prequalification to funding to repayment in just a few business days?
Below is a step-by-step breakdown of what's involved with securing ISO lending:
Prequalification: You’ll start by providing basic information — such as industry, purpose of funding, time in business, and monthly revenue — to the ISO so they can make an initial decision on whether you meet the minimum criteria for their lending partners. Most ISOs offer same-day decisions on prequalification.
Application: Assuming you prequalify, you’ll then move on to a detailed application process and may need to provide documents like bank statements, business licensing, and tax returns. This will depend on which lending solution you’re applying for. Some options will have applications that only take a few minutes.
Underwriting: At the underwriting stage, your application will be reviewed and addressed based on the lending provider’s eligibility criteria and risk factors. They may look at information like cash flow stability, credit score, and monthly revenue.
Decision: Next, the ISO will notify you of the lender’s decision, and if you’re approved, they will present you with one or more funding options, complete with terms, rates, and repayment options. Many ISOs can get you a decision within three to five business days of prequalification.
Funding: Once you review the offer, accept one of the options, and sign the paperwork, funds may be deposited into your business bank account as soon as the next business day.
Repayment: Finally, you’ll begin repaying the funding according to the agreed-upon repayment plan. The ISO will also maintain contact, offering you support and potential renewal opportunities over time.
Backd’s Available ISO Lending Solutions
Backd maintains partnerships with ISOs to better provide financing solutions for small and medium-sized businesses. Let’s look at the options available through Backd.
Working Capital Advance
Backd's working capital advance provides a lump-sum payout that businesses can use for growth opportunities or immediate financial needs.
Our working capital advance offers several benefits to SMBs. Here’s what you need to know:
Substantial capital: Businesses can access between $25,000 and $2 million upfront capital funding.
Quick funding: With a rapid application process, many businesses receive their funding quickly, potentially within one business day.
Flexible repayment: Choose from daily, weekly, or semi-monthly payments depending on what works best for your business's cash flow.
Reduced risk: An unsecured funding option, you don't have to put up collateral on your business financing.
This option is often beneficial for businesses with seasonal cash flow or other types of revenue fluctuations throughout the year.
Business Lines of Credit
Backd also offers business lines of credit. These dynamic financial tools provide on-demand access to funding.
Here’s what you need to know about our business lines of credit and how they can help your business:
Generous capital: You’ll get access to a business line of credit ranging from $50,000 to $750,000 that you can use as needed.
Cost-effective: Only pay interest on the money you use instead of the entire line of credit.
Revolving credit: The credit available to your business replenishes when you've repaid it, creating revolving funds.
Reduced risk: Like Backd's working capital advance, there's no collateral required, which means less risk.
This option can be ideal for businesses with fluctuating funding needs or those seeking a financial safety net.
How ISOs Can Partner With Backd
ISOs looking to expand their offerings and provide increased value to applicants can partner with Backd for strategic benefits. For example, they can expand their financial offerings, giving customers access to working capital advances and business lines of credit.
By leveraging Backd's financial solutions, ISOs can improve their relationships with existing clients and attract new ones. So, if you're an ISO interested in partnering with Backd, learn more about partnerships, referral benefits, and more.
Empower Your Business With ISO Lending
ISO lending is all about empowering business owners like you with alternative financing solutions that will help your SMB grow and thrive. As a small business owner, you deserve to have access to the capital you need, even if traditional options like bank loans aren't a good fit. When you partner with an ISO, you gain access to a wide range of flexible funding options, including a working capital advance or a business line of credit through Backd.
Even if you don’t work with an ISO, you can apply today for the flexible financing you need. And if you’re an ISO that wants to offer Backd’s lending solutions to your customers, reach out to become a partner.
