Over the past year, financing has become very tight for small business owners, with many traditional sources of capital drying up, such as Advanta, American Express Small Business and CIT to name a few. Recently, financing for large businesses has become somewhat easier to come by, as proxied by the stock market’s rise. Small business owners who compete on Main Street with the larger companies are taking a double-whammy, as their revenues suffer with unemployment at near record highs in the U.S., while at the same time, chain stores of their large competitors have easier availability to capital. When the recession fades and the economy begins growth again, this gap will still persist, we believe. What many small businesses owners do not know, is that there is a form of financing available to address this gap, even when corporate credit cards, lines of credit, business loans, unsecured loans and equipment financing is unavailable. This business loan alternative is called a Business Cash Advance.
Here is how a business cash advance (sometimes called a merchant cash advance) works. A business cash advance financing company will purchase a portion of a small businesses’ future credit card sales. In return for this purchase, the small business will receive a lump sum of cash, deposited into its business checking account. It is quite common for the small business owner to receive this money within a week of being approved. Most companies in this financing industry will offer a one-day approval process once receiving a completed application.
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Small business owners must read the fine print when it comes to getting money from a bank. This goes for taking out a loan or getting a corporate credit card. Most of these contracts that accompany such forms of credit require that if the business cannot meet the payback obligations that the owners of the business repay the loan. If your business fails and you made a personal guarantee, you – the owner – are on the hook.
The Wall Street Journal wrote a sad story citing examples of personal bankruptcies resulting from failed businesses.
We point this out mainly because there are alternatives to business loans that frequently do not require a personal guarantee to repay in the event a business fails. These are so-called standard business cash advances. There are many providers of such business cash advances, also known as merchant cash advances.
Are there drawbacks to using sources of business capital that do not require personal repayment guarantees? Yes. The first is these frequently require that the business switch its credit card processing to a new provider. The second is that this form of financing usually provides a smaller amount of money than a longer-term loan-like product would provide. This is because the financing company assumes repayment will occur in a year or less, whereas loans repayment terms often assume a longer duration, ranging from one to five years. Third, this form of capital is viewed as expensive by some.
However, when you consider the benefits of a business advance, frequently including no personal repayment guarantee and access to capital in under a week, these more than offset the potential negatives.
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Two months ago, we assisted a shoe retailer in Northern California with a business cash advance. The purpose was to buy inventory to increase sales. We have kept the name of this customer confidential.
At the time, monthly credit card sales were $40,000. The cash disbursement happened about a week after the approval process. The shoe store had inventory for a new set of more popular shoes delivered shortly after the cash showed up.
The next month’s credit card statement shows $60,000 in sales, owing in no small part to the increase in inventory. Certainly there were other factors at play like back-to-school shopping and perhaps the economic revival so often-reported.
Still, we were pleased to be part of the company’s success in leveraging an injection of new working capital to increase sales. We hope to report back about how this special retailer’s sales are going in a few months.
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We are recruiting experienced salespersons to market and sell our merchant cash advance services. Knowledge of merchant services, business cash advance, business loans and/or consumer loans is a plus.
You may contact us at 1-877-221-3003 or learn more about the opportunities.
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