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What is the state of Merchant Advance lending?

For the past decade, companies have popped up offering fast cash to small businesses. The application process was streamlined, the processing time was hours, and the end result was cash in your business’ bank account often within one business day. As time progressed, there were as many “lenders” as there were brokers offering these programs. For some businesses, these programs were a means by which to purchase inventory at a discounted rate, front the start-up of a large project, or expand the existing business and its workforce. It was for these types of scenarios that these programs were designed for. The expense of the funds could be added to the overall cost of the purpose they are needed for and then you can establish if the revenue could support the repayment.

Merchant Advances were born out of factoring. While still basing the amount of the advance on future receivables, there is not much more similarity to be found between merchant advance loans and their forerunner. Traditional factoring was far less expensive for businesses and less risky for the factoring companies. What has happened over the course of the proliferation of these programs and companies offering them is businesses find themselves with several open advances at once. Multiple daily or weekly payments can be detrimental to any business’ cash flow.

Recently there have been legal decisions handed down that clarify what these programs are not and go further to challenge the enforce-ability of these contracts. As you may know, a credit card hold-back advance contract requires that an agreed upon percentage of the business’ daily credit card sales be kept and paid toward the contract. The traditional ACH debited advances require a set daily or weekly payment be made. What some courts have found is that you cannot have a set daily payment if the payback is tied to future sales. Because the amount of future revenue cannot be known and established, the repayment amount must be adjusted according to the sales. The validity of the executed agreement can then be called into question.

The Small Business Administration saw the impact these programs were having on businesses and developed the Small Loan Advantage initiative to give businesses an affordable option to access working capital.  SBA Loan Program has helped businesses throughout the country not only get that much-needed access, but they have also helped many businesses to consolidate and restructure their debt, thereby restoring cash flow and profits to the business’ bottom line. Merchant Advance companies have started to tighten their controls and every day, we see another company shutter their doors. Between the losses from defaults, the cost of protracted litigation in multiple jurisdictions, and a tightening of the capital that they had access to that allowed them to fund these programs, the space is shrinking and the funds are no longer pouring out unchecked.

The SBA Loan Program can not only get you SBA financing at incredible terms, through a member of their professional network, they may even be able to reduce the amount that you owe on Merchant Advance debt by as much as 50%. Think about it; they can help you clear up your finances and give you a clean slate so you can get back to focusing on your business and not you daily checking account balance because there is a scheduled debit due to post. Call 855-SBA-150K for more information.



July 18, 2017