Every small business owner knows that if they want cash, the bank is probably the last place they should go. It’s not that they’ve suddenly become untrustworthy since the financial crisis (although some do hold that belief). The real reason is because banks don’t have any interest in lending to small businesses. Banks can’t make enough money from small loans.
Small businesses aren’t without a lack of financing options, however. In the wake of the banks’ neglect, alternative lenders have risen to prominence. Offering fast loans for virtually every business, alternative lenders offering merchant cash advances have become incredibly popular. But not all of these lenders are created equal. Follow these rules to avoid merchant cash advance traps.
What is a merchant cash advance?
A merchant cash advance is a loan against the future sales of your business. The lender will usually demand a percentage of your gross daily receipts, typically in the range of 10%-505%, in payment. Occasionally the advance will be repaid with fixed withdrawals from the borrower’s business bank account instead of a percentage of receipts. A merchant cash advance will usually be given to any business that can show a history of steady receipts above a certain threshold. That means that even companies that have a poor credit rating can get a merchant cash advance, assuming they have the necessary business receipts.
What to look for in a merchant cash advance provider?
Before committing to a merchant cash advance, check the merchant cash advance provider passes these four rules. If they don’t, look elsewhere.
1. The company has been around for several years and has genuine reviews
While these lenders are relatively new, they should still have been in business long enough that a decent amount of information about them can be found online. This includes reviews from genuine business owners who have done business with them. The company should have a secure website that has been in existence for a couple of years, along with a loan book that supports this. If you can’t find reviews about the company, ask the lender to speak to previous customers. A reputable will not have a problem putting you in touch with a past or current client.
2. The fees are listed clearly and are manageable
Once you have decided that the company has a sufficient reputation and history, make sure you scrutinize the loan being offered. The fee should be listed clearly and there should be no hidden fees or charges for acquiring the money. If the company lists a cash advance fee, this is a huge red flag. Make sure you add up all the fees and calculate the annual percentage rate (the APR). The APR is the rate of your loan worked out over a year, taking into account all the expense of the loan. With a merchant cash advance, the APR is usually significantly higher than traditional bank loans. Before proceeding, make sure you are comfortable with the amount the lender is asking you to repay.
3. No pushy sales tactics are used
Under no circumstances should you feel pressured into taking the financing. As soon as you feel like pushy sales tactics are being used to coerce you into signing, take a step back. Ask for some breathing room and for time to think it over. If the lender doesn’t acquiesce, then strongly consider finding another finance provider.
4. You can contact the lender quickly and easily
Your relationship with the lender doesn’t end when receive the funding. This is particularly true with merchant cash advance lenders who will be taking payment from you every day. If you can’t get in touch with the company by phone or email when you’re trying to borrow money from them, there’s no way you’re going to be able to get in touch with them after you’ve taken the loan out. If you are able to speak to other business owners who have used the lender before you sign on the dotted line, ask how easy it is to get in touch with the lender. If the lender doesn't answer your calls during the funding phase, don’t give them your business.
An alternative to merchant cash advances
As useful as merchant cash advances are, they can also be dangerous for business. When repayment means handing over up to half of your daily gross revenue, cash flow problems can quickly occur. A merchant cash advance may help you pay for that unexpected bill, but it may limit you from paying the rest of your bills and debts in the long run. In a worst-case scenario, you could be forced to refinance and roll over the cash advance into a larger, more expensive loan.
Thankfully, there is another way to get the cash infusion your business needs. If you are currently paying off one or several debts, you could get relief by consolidating those debts into a single loan. By consolidating several debts into one single loan, paying your debts becomes much more manageable, and it also usually becomes cheaper because a larger, consolidated loan often comes with much better interest rates and payment terms. This can mean lower monthly repayments and more money to invest in your business.
Alternatively, you can negotiate with your creditors to come to a debt settlement agreement. In this scenario, you can significantly reduce the amount you owe by agreeing to pay off a portion of the debt in a single lump-sum payment. Once this payment has been made, the debt is considered settled. Doing so won’t just decrease the amount you owe to your creditors, it will mean no monthly repayments and, therefore, more money to spend on your business as you wish.
For those business owners looking to consolidate or settle their existing debt, it is important that you speak with a business debt specialist immediately. At Creditors Relief, our business debt relief experts have experience consolidating and settling millions of dollars of debt for businesses just like yours. You could be our next success story.
Say no to merchant cash advances and yes to a free consultation with our team. Call 877-312-6478 to get your business budget formulated and your debts settled so that you can get the cash flow help you need.