Does Your Retail Business Need A Flexible, Fast Money Solution?
The cash flow industry's newest business financing technique – also known by several other names, such as business cash advance, merchant funding, merchant account cash advance, or merchant cash advance – gives retail and service business owners with significant credit card sales quick and easy access to working capital financing.
The older, more traditional business financing methods – accounts receivable financing (particularly receivables factoring and asset based lending) and purchase order financing – exclude most retail and service companies that do not invoice their customers. So in the late 1990s, the cash flow industry introduced the business cash advance to fill this large void. Judging by industry statistics, credit card factoring has been a particularly welcome addition to the small business financing tool chest.
A business cash advance is not structured as a loan but, like receivables factoring, is an advance. Instead of an advance against invoices, credit card factoring providers offer businesses a lump sum payment in exchange for a share of future credit card receipts.
Also like receivables factoring, the business cash advance is made at a discount to an anticipated face value of credit card receipts, but rather than collecting on invoices, the credit card factoring provider will be entitled to the client's daily sales that are paid with customer credit cards.
For example, a business cash advance provider might offer to deposit $8,000 into your bank account today in exchange for $10,000 in future sales. The provider will directly collect a set percentage out of your daily credit card sales until it recovers $10,000 – the $8,000 originally advanced and a $2,000 premium. Collection is spread out over a pre-determined time frame so that it won't negatively impact your businesses – an important benefit because the amount you pay will vary with your cash flow. During slower months, you pay less; in better months, more.
Our FREE monthly newsletter keeps you on top of the latest developments in the rapidly growing cash flow industry and how it can help your company thrive.
Compared to a bank loan or business line of credit, which has a firm date that it has to be repaid with fixed payments that have to be made on a schedule, a business cash advance offers tremendous flexibility. You have no due date, no fixed payment.
The catch? On an annualized basis, a business cash advance is quite expensive when compared to the interest rate on a bank loan or business line of credit. Make sure you understand what the costs are so you can determine if credit card factoring is a solution for your company.
A business cash advance is based on the monthly credit-card sales history of your company, so the larger the average credit card sales volume, the greater the advance you will be allowed.
Advances of $20,000 to $50,000 are the industry norm, but for larger companies, they can be $150,000 or more.
Merchant funding is readily available to many retail businesses – such as restaurants, clothing and apparel stores, health clubs, etc.– and service companies that have been in business for at least one year and which average at least $3,000 in credit card sales per month.
If your company is newer or you have less than $3,000 in average monthly credit card receipts, you will have fewer providers to choose from, but as credit card factoring becomes more widely known, new providers continue to enter the field. Consider talking to a commercial loan broker or small business financing consultant for help locating a smaller, or niche factoring company that will work with you.
Though still not well known or understood, merchant funding has grown substantially in recent years, with the tightening business credit environment fueling demand. Not only have new providers entered the cash flow industry to meet the demand, traditional invoice factoring companies have added the business cash advance to their menu of services.
You can do the research yourself to locate a suitable provider, often a painstaking and difficult task, or work with a commercial loan broker or small business financing consultant to save time and money. As is the case with traditional receivables factoring, you can use the services and industry contacts of a consultant at no additional cost, since they are compensated directly by the factor.When The Banks Say "No" . . .
Credit card factoring is a potent enhancement to a cash flow
that had previously excluded direct-to-consumer retail and service
businesses. As an alternative to the relatively slow, cumbersome, and
inflexible bank loan or business line of credit, it has no equal,
especially in the small business financing arena.
In today's tight business credit climate, finding business loans with bad credit or no credit and little or no collateral is next to impossible. Credit card factoring offers a flexible way to manage cash flow, build business credit, and grow your company – all the while opening the doors to traditional business financing.
Arm yourself with the latest knowledge and information. Sign up for the free monthly Smart Business Financing Newsletter today!
Subscribe to our feed to be notified when we add new articles and pages to Smart-Business-Financing.com
Want one-on-one, no-hassle help now? Contact us anytime to discuss your specific needs with a knowledgeable business financing consultant.
e-course on cashflow notes,
software, downloads, books,
|A Novel Solution For America?|
Check out the novel by AEGIS's very own Mike Lieber!
Click the book cover to visit the publisher's web site where you can read an excerpt, reviews, and more!
International Association of Commercial Finance Brokers