Prior to 2007, small businesses that need a quick infusion of cash to meet smaller debt obligations, such as paying off overdue invoices or taking care of mounting utility bills found it difficult to obtain quick funding. In response to the financial meltdown of 2007-08, a new source of short-term capital was created just for small businesses. The Merchant Cash Advance program eliminated the problem of banks refusing to issue small and mid sized loans quickly for small businesses operating in a wide variety of niches.
The Merchant Cash Advance attempts to fill small business needs by requiring the purchase of future account receivables. It does not require small businesses to meet the onerous lending requirements imposed by financial institutions. However, the Merchant Cash Advance program can lead you down the financial path of ruin.
The Merchant Cash Advance creates a cash advance for a small business typically overnight and at the most, 48 hours. Underwriting the financing agreement involves calculating one month of average deposits and then immediately injecting cash into a business.
You receive fast and easy money, but at interest rates that fall between 30% and 40%. Amortizations run about six months and the program takes money out of your business credit card processing account or one of your operational bank accounts via ACH. Withdrawals can reach unsupportable levels, so small business operators should use the Merchant Cash Advance program as a financial strategy of last resort. Co-signors are often required to validate cash advances.
Since a Merchant Cash Advance is not considered a loan, the program is not regulated as a loan and does not offer certain protections and safeguards for small businesses. Borrowers that default have the option to pay off the first cash advance by taking out a second cash advance. However, this strategy is destined to end poorly for small business owners. This is referred to stacking, and it can quickly drain all of your small business finances.
Shortly after the invention of the Merchant Cash Advance program, we were overwhelmed by small business owners who defaulted on at least one cash advance. These small business owners were unable to withstand the intense pressure of account withdrawals to pay back the cash advances.
Without rules and regulations, small business owners are at the financial mercy of cash advance collectors.
We quickly take action to implement the following strategies for our clients:
We offer small businesses an alternative option to going belly up by creating a strategy that gets them out of the vicious debt cycle.
Contact us today to receive a free initial consultation and determine how we can help you deal with your Merchant Cash Advance funding source. We have experience in dealing with the following Merchant Cash Advance companies: