subject: Seven Words To Describe Merchant Cash Advances [print this page] Merchant cash advances are emerging as one of the few effective working capital financing options for small business owners. Because this small business financing approach is not well understood by most commercial borrowers, this report will provide a series of seven-word descriptions about business cash advance services. Our use of concise commercial finance explanations has also been employed in a number of other reports such as "six more words about business loans".
"Banks are the problem, not the solution" is the first observation pertaining to merchant cash advance options. Despite bank bailouts that amounted to almost a trillion dollars, banks have severely decreased their commercial lending efforts to small businesses. Banks have created even more problems by eliminating business lines of credit and recalling commercial real estate loans. Lending by banks during 2009 fell by the largest amount in over sixty years. The number of troubled banks continues to increase. Despite the failure of banks to provide adequate business financing, small businesses still need a reliable source of working capital. Business cash advances (which are not funded by banks) have continued to be routinely available to commercial borrowers in the midst of the most troubling business banking environment seen in several decades.
"New funding sources are better than expected" is a second explanation of merchant cash advances. When a small business fires their current banker and needs to locate a new commercial funding source, they will discover that the most effective business cash advance providers have been around for a number of years. These specialized commercial lenders were actively providing much-needed business financing to small businesses even during the worst of the recent banking crisis.
Our third observation is "credit card processing costs can be reduced". A typical merchant cash advance provides working capital to a small business owner based on the expected volume of their future credit card processing activity. The amount of business financing is then repaid gradually as future credit card purchases are processed. Credit card processing costs are one of the most significant expenses for any small business, and the use of business cash advance services is a perfect opportunity to evaluate whether this cost can be reduced. When they learn how much they have been overpaying for their credit card processor, it is not unusual to hear a business owner express their surprise and disappointment. One of the benefits of working with established merchant cash advance services is their leverage in obtaining the best possible terms for processing costs.
A final illustration of seven words to describe business cash advances is a precautionary "there are ten potential problems to avoid". In general business financing options are likely to be more complicated than expected by commercial borrowers. This potential for confusion will probably be even more accurate when discussing merchant cash advance options as we have identified at least ten unique problems that can occur with business cash advance services. On a positive note, we have concluded that all of these specific difficulties can be avoided with appropriate efforts. Business owners should discuss their situation with a small business finance expert who can also evaluate alternative approaches for obtaining working capital financing in addition to merchant cash advances.
This article was structured to provide a series of short and candid explanations about business cash advances. This overview of a specialized working capital financing technique was designed to offer a concise evaluation of potential problems that should be anticipated with merchant cash advance services before finalizing a choice of business financing options.
