If you have secured a cash advance or loan, you can order more inventory, remodel your location, or plan an expansion. However, in these times of  “economic uncertainty,” your best bet may be getting isnurance to protect your investment.  Whether you are just starting out or have owned your business for years, it would certainly be a blow to your finances if your building suffered any damage, if you were involved in a lawsuit with a disgruntled employee, or needed to recall a product. In any case, insurance can give you peace of mind. Knowing that you are covered against these and many more issues can be a great step towards building your business and taking it to the next level.

Now, choosing the right insurance for your business is important. The Small Business Insurance Data Disclosure Act says that the diparities between insurance prices and availability can negatively affect the business’ ability to grow.  So what are your choices?

Commercial Property Insurance: This one protects the physical place where you conduct your business. From fences and outdoor signs to furniture and equipment, this type of insurance takes care of any damage to the property due to fire, floods, earthquakes, and any other unforeseen events.

Product Liability Insurance: Do you manufacture a product? Then this insurance is for you. If any of your products is defective or needs to be recalled, you will benefit greatly from the coverage that this insurance offers.  In this case, the price of the policy depends on the type of product that you provide.

Professional Liability Insurance:Also known as malpractice and error and ommission insurance, it protect business owners against negligence claimes filed by customers. For example, if you own a carpet cleaning service and a customer claims that you ruined their luxury Persian rug, this insurance would shield you against paying a costly compensation.

General Liability Insurance: Protect yourself against possible legal action stemming from injuries, claims of negligence, or accidents in the workplace. This insurance will save you the legal hassle and cost of dealing with medical expenses, libel and slander, property damage, and court settlements. Again, the amount of insurance that you need will depend on the type of business that you run, and the kind of products you offer.

Home-Based Business Insurance: From pet sitting to interior decoration to freelance writing, many have chosen to enter the work force from their own home. Since in this case home is your office, physical damage may be covered by your existing home insurance. You may need to purchase a home-based insurance policy to protect your business from general liabilities and possible issues with your product or service.

A cash advance would be a great way to purchase insurance, which in the end, may save you money and grief.

The “secret” to profitability in a women’s clothing store is inventory turns.  The faster the inventory turns over, the more profitable the store is.  For those who are new to the concept of inventory turnover, inventory turnover reflects how often your inventory is sold and re-purchased (turned over) within an accounting period. The formula is: Inventory Turnover = Cost of Goods Sold / Average Dollar Value of Inventory On-hand. Turning inventory fast is good for cash flow and profits.

How to Double Profits on the Same Investment

Here is a simplified example of inventory turns:  let’s say that all you have in inventory is one dress, which you bought for $75.  You plan to sell the dress for $300.  The dress hangs on the rack for one year until someone buys it.  Your gross profit is $225 on your inventory investment of $75. But, let us say you sell the dress in six months for $300, re-invest your original $75 into another dress, and sell it six months later. You have now turned your inventory twice in the same accounting period. Your inventory investment at any given time was only $75, but now in the same period (one year) you have made $450 gross profit on your $75 inventory investment. The key here is to turn your inventory as fast as possible; the faster you turn your inventory, the more money you make on your inventory investment.

Don’t Warehouse Inventory

As inventory ages, sell it off regardless of price.  Warehousing inventory is suicide for a women’s’ clothing retailer.   Don’t get stuck in the mindset that “I paid X, so I have to at least sell it for Y.”  Think in terms of gross profit and gross margins on your entire inventory; otherwise, you will wake up one morning and find you have a store full of merchandise that no one is willing to buy.

How to Freshen Inventory

Some women’s clothing retailers will say “if I sell my inventory for less than I paid for it I won’t have money to buy more inventory”.  Retailers who strategically use a Merchant Cash Advance (MCA) find just the opposite is true.  Most consumers make clothing purchases with a credit card.  The higher a store’s monthly credit card volume becomes, the more money can be advanced from an MCA provider.  Women’s clothing retailers who sell off their “dead” inventory at bargain prices discover four advantages to doing so:

1. Their store’s popularity grows with bargain-loving shoppers
2. Their increased credit card volume gives them access to MCA funds
3. The fresh inventory acquired with MCA funds keeps customers coming back
4. Shoppers attracted by the bargains often purchase fresh new items as well

Women’s fashion retailers find that the combination of deep-discount end-of-season sales combined with fresh new inventory is a pleasing combination to fashion-conscious women shoppers.

It’s also important for a rental company to have an asset base big enough to generate sufficient rental income to pay the bills.  Rental equipment experts state that an equipment rental company must regularly invest in new equipment and equipment upgrades in order to keep growing.  The challenge for a rental equipment business owner is how to simultaneously maintain cash flow and growth.       

Often, equipment rental companies can both grow and increase their cash flow by working out special deals with equipment manufacturers.  Regardless of whether the economy is good or bad, equipment manufacturers have to sell or lease their equipment to stay in business, and that’s good for local rental companies.  In a down economy, local rental dealers can leverage themselves into a growth position by working closely with equipment manufacturers.

Three Ways to Acquire New Equipment

There are several ways that a rental company can acquire new equipment without depleting the checking account or entering into expensive loan agreements and/or leases.  They are:

1. Rental-purchase: some manufacturers off a rental purchase agreement that allows a local rental company to rent a piece of equipment.  If the demand for the equipment is adequate, the local dealer can purchase the equipment; if not, it can be returned to the manufacturer.
2. Rental split:  rental split programs allow the local dealer to accept a piece of equipment from a manufacturer and split the rental income with the manufacturer.  Typically, the rental fees are split with 80% going to the manufacturer, and 20% going to the local dealer. The money paid to the manufacturer applies to the purchase price of the equipment, so the equipment eventually becomes the property of the local dealer.
3. Merchant Cash Advance for Equipment Purchase:  A merchant cash advance (MCA) is an advance against a local rental dealer’s credit card receipts.  By taking a merchant cash advance, rental companies can buy smaller equipment for homeowner usage and pay cash for it.  Manufacturers often offer deep discounts for cash purchases, and the rates charged by MCA providers are often substantially better than “rental split” terms offered by equipment manufacturers.

Rental equipment managers who pay close attention to the profitability of individual rental items in the fleet and maximize cash flow will find that their business grows every year.  A merchant cash advance can be an important tool for the growth of an equipment rental company.

Merchant Cash Advance for Any Purpose

When an entrepreneur goes to a bank for a loan, the bank always wants to know how the money will be used.  They want to see a business plan, and they’ll do a credit check, and ask what sort of collateral is available.  Then, if they think the entrepreneur’s idea is silly, they won’t loan the money, even if everything else checks out.  Such arbitrary decisions by bankers prove that if bankers thought like entrepreneurs, they wouldn’t be bankers.  Imagine Marconi at the bank trying to get a loan for his new invention, the radio:

Marconi: “I’d like to borrow money for my new invention, the radio.  It enables people to be heard over long distances without wires”

Banker:  “That’s the silliest idea I’ve ever heard of.  It can’t be done without wires.  Get out”.

Bankers have no imagination.

The beauty of a merchant cash advance is that unlike banks, advance providers don’t really care how you spend the money.  They only care that you can pay it back.  Spend your advance on remodeling, equipment upgrade, expansion, taxes, working capital, training, marketing, buying out a partner, product development, payroll, staffing or what-have-you. You’re the “idea man”; you’re the entrepreneur.  Use the money to make more money.

The Merchant Cash Advance provider advances money on your future credit card receipts.  As long as your credit card receipts are at least $2,500/month, you’ve owned the business for at least four months, and you have a FICO score of 500 or better, you qualify for an advance.  The advantages of a merchant cash advance are:

• Re-payment of the loan is done from credit card receipts; there is no fixed payment.  When sales are down, your payment is low.  When sales are up (and you can afford it) your payment goes up. 
• No fixed repayment term
• No collateral
• Approval not based on your credit score

A recent survey of merchant cash advance users showed that the entrepreneurs were indeed using the money to make more money the survey showed that:

• 53% used the funds as working capital
• 37% used the funds for growth

Less than 10% of the merchants surveyed used their cash advance for emergency funding. 

Entrepreneurs who have a good idea and lack the funds to pursue their vision can benefit from a merchant cash advance.

The difficulty in a new business trying to establish a line of credit at a bank is that the business itself has no prior credit.  Like a high school graduate entering the workplace, it takes time for a new business to get established.  Banks won’t loan money to a business unless the business has substantial assets, collateral, and a proven ability to repay the loan.  Few new businesses qualify for a business line of credit. 

How to Build Corporate Credit

The first step in building corporate credit is to establish a separate identity for the business.  This is done through incorporating or becoming an LLC.  A corporation is a separate legal entity from its owner(s).  Both corporate and personal credit are kept in different databases and are treated as separate accounts.  Businesses that operate as sole proprietorships share the credit rating of the owner.

Once the business is properly organized, the next step is to build trade credit.  Trade credit comes from your suppliers of inventory, janitorial supplies, office supplies, and such.  Establish 30-day accounts with your suppliers and pay them on time, always.

Merchant Cash Advance

Merchant cash advances are authorized on the ability of a business to attract customers on a regular basis.  A business that has a regular clientele and a certain level of credit card transactions may qualify for a merchant cash advance.  Generally the requirements are:

• $2,500 minimum in credit card sales per month
• 4 months as the current business owner
• Be current on the property lease
• Have a FICO score of at least 500 (better credit = more funds and lower rates)

A merchant cash advance is a good way for a business to establish a reputation as a conscientious borrower.  It is also a cash-flow-friendly way to obtain funds, because:

• Re-payment of the loan is done from credit card receipts; there is no fixed payment.  When sales are down, your payment is low.  When sales are up (and you can afford it) your payment goes up. 
• No fixed repayment term
• No collateral
• Approval not based on your credit score

Banks Will Want Your Business

Banks are in the business of lending money, and they want to lend money to businesses that have a proven track record and that are a good credit risk.  By building good trade references and a good repayment record with a merchant cash advance provider, a new business can obtain a good credit rating and greatly improve its’ chance of getting a business line of credit from a bank.

Bank Qualification Standards

Typically, banks require that a business meet the following five standards:

1. Profitability for the past three years, as shown on your tax returns
2. Revenue growth for the past three years
3. Sufficient profits to be able to afford the loan payments
4. Good business credit PLUS good personal credit
5. A good reason for borrowing the money, and pro-forma financial statements to show how the loan will impact the business

One Strike and You’re Out

Most small businesses fail to qualify on one or more of the above points.  In the current recession, what small business has been able to increase revenue?  How many business owners have been able to maintain their personal credit rating?  To make matters worse, most small business owners barely have time to keep their records current; much less spend time creating “crystal ball” pro-forma statements.

Banks have no choice when it comes to turning down an applicant that doesn’t meet the above standards.  Banks are federally regulated, and simply cannot lend to unqualified borrowers.  All banks have lending standards, and those standards are subject to review by federal regulators.  If a bank lends money contrary to their lending standards, they can be shut down by the government. 

SBA Loans are Still Bank Loans

Contrary to popular belief, SBA loans do not come from the government; they are bank loans that are guaranteed by the government.  Loan applications still must meet all of the bank’s lending requirements to be accepted.  Currently, the SBA has a huge portfolio of troubled loans.  They aren’t taking any risks; only the most qualified borrowers are getting approved.

Merchant Cash Advance is a Bank Loan Alternative

For many small businesses, a Merchant Cash Advance is a viable alternative to a bank loan.  A Merchant Cash Advance is not a loan, so the qualification standards are completely different.  Typically, a business does not have to produce tax returns, pro-forma financial statements or tax returns.  There is no collateral required, and no requirement that the money be used for a particular purpose.  To qualify for a Merchant Cash Advance, a business owner must have:

• $2,500 minimum in credit card sales per month
• 4 months as the current business owner
• Be current on the property lease
• Have a FICO score of at least 500 (better credit = more funds and lower rates)

Re-paying a merchant cash advance is easy as well:

• Re-payment of the loan is done from credit card receipts; there is no fixed payment.  When sales are down, your payment is low.  When sales are up (and you can afford it) your payment goes up. 
• No fixed repayment term
• No collateral
• Approval not based on your credit score

In the currently lending environment, a small business owner in need of funds will find that Merchant Cash Advance providers are much easier to deal with than a bank.

Bootstrap Financing Has Limitations

Many new carpet cleaning operators finance their business by their bootstraps; that is, they use their personal credit card to set up shop, and rely on cash flow to pay the bills and fund growth.  In the short term, this will get the business started.  Without cash reserves though, the business is vulnerable to slow sales periods, bad weather, and equipment breakdowns.  A carpet cleaning business needs a source of financing to rely on when sales are slow.   Banks rarely loan money to a bootstrap business. 

Residential Customers Are Key

New carpet cleaning operators often dream of striking it rich with big commercial contracts.  However, a strong base of residential customers is needed if a carpet cleaning business is to grow and prosper.  Residential cleaning pays better than commercial cleaning does on a square-foot basis and residential customers pay as soon as the job is complete.  Often, residential customers pay by credit card, and the credit card sales thus generated become a valuable asset to a fledgling business.  

Commercial Cleaning Cash Flow Crisis

Commercial carpet cleaning is very competitive; new operators frequently underbid jobs just to get a foot in the door.  Commercial contracts can quickly turn a small business into a big business, provided the small business has the cash to keep existing commitments.  The problem with transitioning to commercial cleaning is one of cash flow.  Unlike residential customers who pay at the end of the job, commercial accounts usually pay monthly or semi-monthly. 

When the checks for commercial cleaning start arriving on a regular basis, a carpet cleaning operator will have cash for running his business.  Until the “check pipeline” is filled, though, a small operator must have cash to operate. 

Merchant Cash Advance Bridges the Gap

A merchant cash advance can bridge the gap while waiting on a commercial account to pay.  An operator who has been wise enough to develop a healthy residential business with at least $2,500 in monthly credit card receipts will find that it is easy to qualify for a quick cash advance.  In order to take advantage of a merchant advance, an operator needs:

• $2,500 minimum in credit card sales per month
• 4 months as the current business owner
• Have a FICO score of at least 500 (better credit = more funds and lower rates)

A carpet cleaning operator who has taken the time to develop a strong residential clientele and a good book of credit card business will find himself in an enviable position.  He will be able to grow and prosper by utilizing a merchant cash advance to meet his cash flow needs.

The Issue is Cash Flow, Not Honesty

Like every other business, Kruse has to collect money owed him in order to pay his bills and his consignors.  In a tight economy, sometimes that is difficult to do.  Auto Week magazine interviewed Dean Kruse, the owner of Kruse International, in its’ August 10 edition.  Kruse told the magazine that poor cash flow was at the root of his problem.  He said that car dealers who purchased some of the auctioned vehicles had not yet paid him because they themselves were struggling.  Kruse claims he has done business with the offending dealers for years and is certain he will eventually be paid.  In the meantime, Kruse has put his business at risk.

Notwithstanding the poor business practice of transferring the title of not-yet-paid-for vehicles to a new owner and then allowing them off the lot, Kruse seems like a sincere guy.  He still has a certain level of trust among the locals: he has almost 1,500 vehicle lots register for his September auction.

Not Just Auto Auctions

Other auction companies experience cash flow problems as well.  Executing an auction is an expensive proposition; even a small, on-site estate auction can incur great expense.  It can take hundreds of man-hours to sort through a decedent’s personal property, organize the property into saleable lots, and set up the auction.   Frequently, the auctioneer must provide toilet facilities, rain cover, food, credit card processing, office staff, and moving help. 

Risk of poor sales is faced by every auctioneer.  What if it rains the day of the auction, and the crowd is poor?  Poor crowds result in low bids; low bids equal poor cash flow.  The staff has to be paid, or they won’t work for you again.  The auctioneer is faced with a tough decision:  pay the staff and “live” to auction another day, or pay the consignors immediately and alienate the staff. 

Merchant Cash Advance for Emergency Funding

Fortunately, most auction companies are in good standing with their merchant accounts.  Most consumer payments at an auction are made via credit card, and auctioneers regularly generate credit card receipts into five figures.  A merchant cash advance is the ideal cash-flow solution for an auctioneer, because:

• Repayment is made from credit card receipts, so the payment will go up and down as sales go up and down
• There is no fixed repayment term
• No collateral is needed

Auctioneers who have at least $2500/month in credit card sales, have been in business at least four months, and have a FICO score of at least 500 generally qualify for a merchant cash advance.

For auctioneers facing a cash-flow deficit, a merchant cash advance can provide quick funding to pay both staff and consignors

The carpet was ripped up.  The sub-flooring was plywood, and it was soft and mushy in places.  Replacing the sub-flooring was an expected expense, and it, too, was taken up.  That’s when the unexpected problem appeared: the floor joists were not level.  There was an almost one-and-a-half-inch drop from one side of the room to the other, from the front door sill to the far left corner of the room.  The problem wasn’t apparent when the carpet was down and the furniture was in the room.  If the new floor was to be level, the joists would have to be leveled.  The inch-and-a-half difference would be just enough to cause some line-of-sight problems, and the homeowner wanted it fixed.  

Home improvement contractors are accustomed to surprises; they can never tell what they will find when they rip out a floor or a wall.  Correcting the drop in the floor would be easy enough; the plan was to attach new joists alongside of the old joists and level-up the new joists.  Then, the new sub-flooring could be installed over the leveled joists, and the hardwood flooring installed over the sub-flooring.

Short on Cash

Like many home improvement contractors, the contractor in our story had several projects going simultaneously.  His credit card at the Home Store was maxed out, and he needed funds to complete this flooring job.  Of course, a change order was signed and the difference would be billed to the homeowner, but not until the job was complete.  The contractor needed money now, and his credit lines were tapped out.    

Funding from a Merchant Cash Advance

Homeowners often paid the contractor by credit card; the contractors average credit card sale was over four figures, and his monthly volume was substantial.  Because of this, the contractor easily qualified for a merchant cash advance.  The advance enabled the contractor to purchase supplies and finish the floor job in a timely manner.  The contractor was able to:

• Repay the loan from future credit card receipts
• Avoid another fixed monthly payment
• Get cash much faster than a bank loan
• Have an ongoing source of funds

Easy to Qualify

A quick business loan through a merchant cash advance is easy to qualify for.  The requirements are:

• $2,500 minimum in credit card sales per month
• 4 months as the current business owner
• Have a FICO score of at least 500 (better credit = more funds and lower rates)

Home improvement contractors who need funds to complete work-in-progress are glad to have access to a merchant cash advance.

The Golden Rule

Credit card agreements are not like traditional loan contracts.  A traditional loan contract is an agreement between two parties that cannot be changed by either party: the terms are the terms.  Credit card agreements are different; the bank can change the terms at any time.  If you are late with a payment, they can raise your interest rate.  If you go over your limit, they can raise your interest rate.  If your credit score drops below a certain point, the bank can raise your interest rate. If you are late with a payment to bank #2 on a completely different credit card, and bank #1 sees the late payment on your credit report, bank #1 can raise your interest rate.  It’s a perverted Golden Rule:  he who has the gold makes the rules.  

How to Pay Off the Credit Cards

If a business owner has been in business for at least four months, accepts credit cards as payment from his customers, has monthly volume of at least $2,500, and has a personal FICO score of at least 500, a merchant cash advance can provide a way out of the difficulty surrounding making credit card payments to the banks.  A merchant cash advance is a cash advance against the businesses future credit card sales.  It is not a loan.  The benefits of a merchant cash advance are:

• Re-payment of the loan is done from credit card receipts; there is no fixed payment.  When sales are down, the payment is low.  When sales are up (and it’s affordable) the payment goes up. 
• No fixed repayment term
• No collateral
• Approval not based on your credit score

A merchant cash advance can take the fear and uncertainty out of dealing with banks and their credit card practices.  A merchant cash advance can put a small business back on the right side of the Golden Rule.