Merchant Cash Advance …Ally or Enemy?

Merchant Cash Advances are short term (6-12-18-24) month loans structured with” factored rates” NOT revolving “interest rates” based on your future receivable (monthly bank deposits).  While running your business, owners need additional funds for working capital, payroll, inventory, etc.   These loans are available through various lenders some would call predatorial…but are they?

Here are some sample questions to determine whether these loans are allies or enemies for your business…

  • If you are 6 months in business and decide you need additional working capital, would a conventional bank fund you?
  • If you have been in business for over 18 years with great financials to prove, but had a bad divorce and credit score plummeted to a 520, nevertheless business is doing spectacular, and need to invest in additional inventory, would a conventional bank fund you?
  • If you have a great producing business, and your partner failed to file taxes which caused you to incur a $250,000 federal tax lien with IRS, and now on a payment plan, would a conventional bank fund you?
  • If you’re opening a second location, an been in business for over 15 years whether retail or restaurant, 780 credit score, impeccable financials, no liens, no judgments…would a conventional bank fund you?

While conventional banks are there for picture perfect scenarios, such as the last example above, most of us unfortunately fall under the first 3 categories, if not, are in more complicated scenarios. It’s like having an automobile repo walking into Mercedes Benz inquiring to get financed for a 2017 S class with a 3% interest rate?…Ha!  Wouldn’t you say as a finance company the risk is a lot higher as opposed to seeing good credit history, and timely payments?  Conventional banks will deny your application and leave you with no other options for you to grow your business.  Who’s the enemy and who’s the ally?

  • Merchant cash advances are there to provide (3-6-12-18-24) month loans (our risk is a lot higher)
  • Approve your loan with a federal tax lien (must have payment plan with IRS and can prove it)
  • Approve your loan with no more than 10 NSF on your bank account per month
  • Approve your loan as little as 3 months in business
  • Approve your loan with minimum 480 FICO score

We fund millions and millions of dollars based on these scenarios.  So, let’s talk a little about interest vs. factor rates…basically interest rates are accrued over a set period (10, 15, 30 years) at a lower percentage rate contingent upon your credit worthiness often with no prepayment penalty.

Factored rates ARE NOT revolving in merchant cash advances, the rates are preset into the lending amount.  There are no prepayment penalties, nevertheless if you are paying early the “payback amount” stays the same and will not be negotiated.  Again, it’s not a revolving loan nor are interest accrued, for example:

  • Prepaid borrowing amount: $10,000
  • Pay back amount $13,500
  • over 3 months (72 days)
  • Daily payments of $187.50 (Monday-Friday)

The risk is a lot higher, and lenders wants a return a lot faster.  Most of us are not aware the factored rates are 100% tax deductible as well as interest rates…so the fee you write off (100%) on your business tax return.  The reality is no FDIC conventional bank will lend you money to grow your business with high risk involved.  Of course, we assume you will take responsibility in these merchant cash advance loans and not default or go bankrupt behind it.  Most of us are not aware, it’s an extremely close network, everyone knows each other and if you bounce from one company to another because you defaulted, they will know who you are and will decline your loan.

Are merchant cash advances predatory or dare to take the risk with your business with all the cold hard reality of issues?  We are not asking you to feel shame nor are we judging, we are simply saying we are here when you need us despite what’s going on in your business or personal life.  We will lend you the money to help prosper your business, so ask yourself, are we the ally or the enemy?

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