Merchant Cash Advances (credit card receivable funding)... Good or Evil?

Okay....so you are a restaurant owner. Chances are you’re getting bombarded at least weekly by sales reps, phone calls, faxes, direct mail pieces, strip-o-grams, etc. approaching you with a unique program that can get you working capital based on your credit card sales. Sound familiar? Heads are nodding I’m sure.

Since it is becoming more mainstream every day, I am assuming most restaurant owners are somewhat familiar with what a Merchant Cash Advance is. I am also assuming others are not so familiar. I am writing this in hopes of soliciting comments and questions. I really want to know what thoughts, perceptions, and experiences (have you used this type of funding?) are out there.... both good and bad.

What is a Merchant Cash Advance? Here's the crash course. Well, first of all... it’s NOT a loan. There is no interest rate, APR, etc. It has a fixed cost known as a discount rate. It is a form of factoring or simply put.. a purchase and a sale. Merchant Cash Advance companies (aka the Factor) agree to purchase a percentage of a merchant’s future credit card sales at a discount. In turn, the merchant gets a cash advance (usually from $5K to $200K) against those future sales to inject into their business any way they see fit. In most cases without personal collateral or guarantees.

Because the Merchant Cash Advance company assumes all of the risk (advancing a merchant funds against sales that haven’t even occurred yet) this type of funding does come at a premium. This is where it gets scary. Discount rates range from 20% - 50%.

At some point most restaurant owners are going to need money. They may want to expand, replace broken or outdated equipment, fund an advertising campaign, buyout their bipolar cheez whiz addict evil partner, whatever the case may be. Now, we all know how much banks and traditional lending institutions adore the restaurant industry. That’s right... they roll out the red carpet every time they see you coming. They just can’t wait to lend you money.

Traditional wisdom dictates that when you go looking for money...get the best rate possible. If you can secure bank/traditional money at a good rate and good terms...go for it. It is without argument the best route possible. But for those out there that do not get the red carpet treatment from your bank...where do you turn? Friends? Family? Many have gone that route as well.

A Merchant Cash Advance is simply one more option to explore and it is a viable one. Again, the cost of the funds are high. With that being said...it is not for everyone. If you are needing working capital just to keep your doors open, meet payroll, pay off high interest debt, buy a new Corvette, or float yourself through a seasonal rut.....RUN AWAY! This option is not for you.

But, if you can spend $2 and make $5 or more...it’s very much worth considering. This type of funding absolutely has to be used strategically. There must be a realistic return on investment for it’s use. From my own personal experiences in this industry I have found that most of the business owners I have funded are opportunists. They find a way to make money, save money, or solve a problem with a Merchant Cash Advance. All without the headaches of traditional lending. 70% of them come back for future fundings as well. Many of these business owners are A&B paper, they use our funds to supplement their bank money. For others, the accessibility of the funds simply outweighs the cost.

So, is it Good or Evil? What’s your take?

Tags: capital, finance

Views: 56

Reply to This

Replies to This Discussion

Carol.... I feel your pain. I hear this from merchants all of the time. Because the Merchant Cash Advance industry is not regulated there are predator companies out there that do run boiler room phone shops. Many are off shore. I assure you that there are legitimate companies out there however. You just have to be careful as you would with any purchase or business decision.

If you ever get into a "financial jam" or have a strategic use for a cash advance... please contact me. That's why I am here. I will educate you and guide you any way possible. Again.. unfortunately there are clown companies out there doing this and you are right on for being wary.

Best of luck and fortune in your business ventures!

Doug Golden
AMI Funding Specialist
AdvanceMe, Inc.
I have known many a successful restaurateur to utilize services such as these, some by Tim Long himself. The bottom line is using the money to turn a profit, and relatively quickly, which can be tough in this business. If you use poor judgment, or are not using the money to make money, Merchant Advances typically come at much to high of a cost. If you use the money wisely, it can absolutely be worth it.

Just like many different industries, there are shady people working in them, but there are also good ones. I work in the merchant services industry, which typically carries not the best reputation even though there are plenty of honest, hard working, customer focused people working in that industry. I have heard of Doug's company many times, and I know Tim personally, as he is a fellow member of the Mid-South Restaurant Consulting Group. Neither come from a "boiler room" scenario, but some do in their industry, so make sure you are dealing with a reputable company (and perhaps even someone from FohBoh!) when utilizing these types of financial services.

My vote is absolutely good, if used correctly!
One of the most expensive forms of financing..............Interest rates are enormous

If your bank says NO!!!..............there might be a good reason.
Use only in an emergency
Great! Thanks for the great article posting and your all effort. I think the above article is valuable for all concerned people about this topics. For me the Informations are really really useful for my research. I've Bookmarked this page for future reference
merchant cash advance
merchant cash advance business
We offer a real loan product that cost half what a Merchant Cash Advance does. Our rate is 14.99% where the average Merchant Cash Advance rate is 35%, we are less than half!!! The loan is unsecured and we accept FICO Scores as low as 500.

You can visit our website www.lordlongco.com and click on the "How It Works" page. If you have any questions you can reach me at 901-324-5237 Tim

RSS

Advertisments

 

DEPARTMENTS

Social Wine Club for Craft Wineries

Smartbrief

QSRs squeeze into unconventional locations

Nontraditonal quickservice units are popping up wherever people are, moving beyond street-side and mall locations to military -More

Optimize efficiency with an applicant tracking system

Businesses increasingly are turning to software programs that make applicant tracking more efficient.  -More

Read the NRA statement on NLRB's joint employer decision

 -More

All-new pasta dish features Grand Cru® Alpine-style cheese
Roth® Grand Cru® cheeses have a complex and full-bodied flavor that's crafted to achieve excellence in your menu applications. Try it in Manicotti en Croute with Brandied Fig Dipping Sauce. This elegant and inventive dish recently won our recipe contest for postsecondary culinary students, and is perfect as a sophisticated appetizer, passed hors d'oeuvre or savory dessert.

JOBS & CAREERS

Posting a job or finding a job starts here at FohBoh. Call us about special $50 posting packages to syndicate across all major jobs boards.

National News

Darden Announces Leadership Succession Plan

Darden Restaurants, Inc. (NYSE: DRI) announced that Clarence Otis is stepping down as Chairman and Chief Executive Officer of the Company. Darden's Board of Directors has appointed the Company's current Independent Lead Director, Charles A. Ledsinger, Jr., as Independent Non-Executive Chairman of the Board, effective immediately. The Company also announced that it has amended its corporate governance policies to provide for the separation of the Chairman and Chief Executive Officer roles.

National Restaurant Association Statement on NLRB Joint Employer Decision

Today the National Restaurant Association issued the following statement regarding the National Labor Relations Board’s (NLRB) decision asserting McDonald’s Corporation is a joint employer of its franchisees:

National Restaurant Association Issues Support for Clearer ACA Definition of Seasonal Employment

The bipartisan legislation will align the definitions of seasonal employment in the Affordable Care Act and streamline the applicable large employer determination process.

Rising India, Inc. Announces Acquisition Strategy Toward a Sizable Slice of the QSR Pizza Pie

Rising India, Inc. (OTC: RSII), announces today it will immediately begin work toward the acquisition of up to 5 profitable stores in the popular Quick Serve Pizza Restaurant segment. Current targets are currently earning about $450,000 in revenues per year, per store. Acquisition of targets would provide immediate cash flow identified from profitable longstanding, absentee owner operations with proven model success.

Panera Bread Company Reports Q2 2014 Diluted EPS of $1.82

Q2 2014 Revenue increased 7% to $631 million - Q2 2014 Company-owned comparable net bakery-cafe transactions up 0.4%

CROWD FUNDING

If you are looking for capital to start or grow your restaurant, create the next 501c3, develop and launch the next app for the restaurant industry,or want to help your peers in some meaningful way, we want to know about it.

TED TALKS VIDEO

TED: Ze Frank: Are you human? - Ze Frank (2014)

Have you ever wondered: Am I a human being? Ze Frank suggests a series of simple questions that will determine this. Please relax and follow the prompts. Let's begin …

TED: Heather Barnett: What humans can learn from semi-intelligent slime - Heather Barnett (2014)

Inspired by biological design and self-organizing systems, artist Heather Barnett co-creates with physarum polycephalum, a eukaryotic microorganism that lives in cool, moist areas. What can people learn from the semi-intelligent slime mold? Watch this talk to find out.

TED: Shih Chieh Huang: Sculptures that’d be at home in the deep sea - Shih Chieh Huang (2014)

When he was young, artist Shih Chieh Huang loved taking toys apart and perusing the aisles of night markets in Taiwan for unexpected objects. Today, this TED Fellow creates madcap sculptures that seem to have a life of their own—with eyes that blink, tentacles that unfurl and parts that light up like bioluminescent sea creatures.

TED: Nikolai Begg: A tool to fix one of the most dangerous moments in surgery - Nikolai Begg (2013)

Surgeons are required every day to puncture human skin before procedures — with the risk of damaging what's on the other side. In a fascinating talk, find out how mechanical engineer Nikolai Begg is using physics to update an important medical device, called the trocar, and improve one of the most dangerous moments in many common surgeries.

© 2014   Created by FohBoh.

Badges  |  Report an Issue  |  Terms of Service