Wholesale suppliers are aware of the tendency of businesses to delay payment, so they usually offer discounts for early payment.  Suppliers will structure their terms to offer 2%/10 net 30, or perhaps 1%/20 net 30, meaning: a 2% discount on the invoice for paying within 10 days, a 1% discount for paying within 20 days, with the balance due in full within 30 days.  Typically, interest is added to invoice after 30 days.  If an invoice slips into past-due status, the business owner suffers a double loss:  the loss of the discount and the loss of 18%+ interest that is usually charged on past-due supplier invoices. 

The Cash Flow Advantage of Discounts

What would motivate a business to pay an invoice quickly just to take advantage of a 2% discount?  Consider the math:

Let’s say that a business is offered a 2% discount on a $1,000 purchase of tires for their delivery truck.  By taking the discount, the business will pay only $980.  If the discount is not taken, the business will pay an additional $20 just to have an extra $20 for twenty days.  Now, consider this: there are approximately eighteen 20-day periods in a year.  Paying an extra $20 on every $1,000 in invoices every twenty days is roughly equivalent to an annual interest cost of 36%.  Saving 36% interest makes it worth taking the discount, even if the business has to borrow money to do it.

Merchant Cash Advance Provides Funds

For businesses that accept credit card payments, a merchant cash advance (MCA) can provide the funds needed to get “ahead of the curve” in taking supplier discounts.  An MCA is simply an advance on future credit card sales.  Re-payment is made directly from the merchant credit card account.  There is no collateral needed, the funds can be acquired quickly, and the advance is easy to qualify for.  All that a business owner needs to qualify is:

• $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)

There is no fixed repayment term with a Merchant Cash Advance; a pre-determined percentage is deducted from future credit card receipts.  So, when business is good, the payment will go up; when credit card receipts slow down, the payment goes down as well.  An MCA is a cash-flow-friendly solution to taking advantage of supplier discounts.

Use the Funds However You Wish

Of course, a Merchant Cash Advance can be used for any purpose: renovations, inventory, payroll, or other need.  Just remember, when you need funds quickly, a Merchant Cash Advance is your best bet.

Failure to Pay Payroll Taxes on Time

When a business fails to pay its’ payroll taxes on time, penalties and interest begin to accrue.  Failure to file a return on time can result in penalties of 5% per month to a maximum of 25%.  Other penalties can be assessed as well, such as the “willfulness” or “100% penalty”.  Penalties and interest can add up to a very serious tax problem. 

Enforced Collection

The IRS uses Enforced Collection techniques to collect past due payroll taxes.  Enforced collection can include a levy on the business’ bank accounts, receivables, and equipment.  The IRS can also close a business for non-payment of payroll taxes.  Bankruptcy will not protect the business’ principles or key managers from collection: if the business closes, the IRS will seek payment from anyone who had the authority to sign checks or distribute funds.  Employment tax investigations by the IRS are up 75% in the past two years. 

Banks Won’t Lend Money

Banks don’t lend small businesses money to pay taxes.  In fact, in this economy, banks hardly lend any money to small businesses: loan decline rates in 2010 are nearing the 90% mark.  Faced with heavy penalties and interest from the IRS for late payment of payroll taxes and no money available from the bank, what’s a small business owner to do?

Merchant Cash Advance

For business owners facing a problem paying payroll taxes, a merchant cash advance can provide a quick source of funds.  A merchant cash advance is an advance on future credit card receipts, unlike a bank loan, 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
• 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

Once a business gets on the wrong side of the IRS, it’s very difficult to recover.  The IRS is like a chronic disease: once you have the disease, you never get over it.  You just have to learn to live with it.  For businesses faced with a cash flow problem at payroll tax time, a merchant cash advance is a welcome relief.

Such actions have resulted in making small business owners even more of a risk for banks and have contributed to the high rate of turn-downs for bank loans.   Owners with maxed-out credit lines and highly collateralized property are not attractive candidates for the banks.  

Survey Says…

The high rate of bank denials has driven small business owners to look for new sources of funding.  A recent online survey of 276 small business owners indicated that 87 percent needed a predictable and readily available source of capital.  Consistently, business owners felt that funding decisions should be made on the strength of a businesses’ cash flow and not the ability to collateralize a loan.

Merchant Cash Advance Provides Funding

The survey results reinforce the concept of a merchant cash advance; cash advance decisions are made primarily on the strength of business’ credit card receipts.  Factors like high personal credit scores for the owner are not required, and funds are readily available.  

Funds Are Available Quickly

When businesses with strong credit card sales find themselves short on cash, they can get a cash advance on future credit card receipts with a merchant cash advance.  A cash advance is often a good solution 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

In order to qualify, a business owner 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)

Merchant Cash Advance Gets High Rating

Business owners who have used a merchant cash advance found that it was easy to use, and generally recommend it to other business owners.  The owner of a B & B in Texas has this to say:

“The cash advance allowed my company to expand and grow by opening another location. The payback is truly almost transparent since it is such a small percentage of our total gross revenue that is held back. I highly recommend other business owners to explore this innovative approach to securing working capital without the hassles and tedious paperwork involved with other more traditional lending sources. They get my highest rating of approval!”

A Viable Bank Loan Alternative

Business owners who are in need of a predictable and readily available source of funds who don’t want to tie up their collateral would be wise to investigate the benefits of a merchant cash advance.

 Five Good Months, Seven Slow Months

Florist shops are busiest around Valentine’s Day, Mother’s Day, Christmas, and during the month of June, when many weddings take place.  In between the holidays, business at florist shops is slow but steady: occasional funerals, birthdays, and miscellaneous gifts.  The money made in the good months must be carefully rationed in order to make it through March, April, July, August, September, October and November.

Inventory Drain on Cash

Florists must have fresh inventory, and many nurseries want to be paid on delivery, since the product is perishable.  Even when business is slow, there must be fresh inventory on the shelf; no one will buy wilted flowers.  In addition to flowers, a florist needs to buy plants, containers, boxes, paper, and other supplies. 

The Cash Flow Gap

Surviving in the floral business is not only about how much money is made, but when it is made and when it is spent.  Florists must carefully watch their inventory and cash flow so that they will have enough cash to pay the rent, utilities, and payroll during the slow months.  Having access to a line of credit is desirable, but a line of credit or a bank loan is difficult to get and generally requires collateral and a personal guarantee.  Repaying a bank loan requires regular fixed payments, which are difficult to make because business is slow most of the year.

Merchant Cash Advance Solution

Florist shops generally do a lot of credit card transactions.  When shops with strong credit card sales find themselves short on cash, they can get a cash advance on future credit card receipts with a merchant cash advance.  A cash advance is often a good cash flow solution for a florist 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

 Florists who have at least $2500/month in credit card sales, are current on their property lease, have been in business at least four months, and have a FICO score of at least 500 generally qualify for a merchant cash advance.

Bridge the Holiday Gap

Florists who can access their future credit card receipts through a merchant cash advance will find that they have less to worry about in the slow months between the holidays.

Many would-be entrepreneurs dream of owning their own restaurant.  They imagine walking around a full room on a Friday or Saturday night, chatting with customers and giving out complimentary drinks.  They dream of having a full reservation book and a register full of cash.  Too many of these dreamers start a restaurant and fail within their first year, because they are better at dreaming than planning.  Restaurants lead the list of small business failures.  

Many Profitable Restaurants Fail due to Cash Flow Issues

Restaurant owners are frequently perplexed by cash flow; they can’t understand why, if they are profitable, that there isn’t any cash.  Let’s have a look at a basic cash flow scenario:

You start with $10,000 at the beginning of October; you take in $50,000 in sales, but your expenses come to $55,000; so you end the month with only $5,000.

You start November with the same $5,000, but you only take in $40,000 in sales and your expenses remain the same.  You end the November $10,000 in the hole.

You catch up a little bit in December because it’s the holiday season and there are a lot of people eating out.  But, what do you do about the shortfall in November?  What if your suppliers won’t extend your credit so you can buy what you need in December?  If you don’t have inventory to fix the meals, you can’t service your customers, and if you can’t service your customers, you’re out of business. 

That’s how profitable restaurants go out of business; it’s all a matter of not having cash when it’s needed. 

A Short-term Loan Can Smooth Out Cash Shortfalls

The most useful resource that a small business can have is a line of credit at a bank.  Unfortunately, banks are rarely interested in loaning money to restaurants.  Restaurants have a high failure rate, so they are very high-risk loans for a bank to make.  So, what’s a restaurant owner do when they see a cash shortage on the horizon, as in the example above?

Credit Card Receipts Are a Key Asset

Most consumers pay their restaurant checks with a credit card.  Consequently, restaurants quickly develop a substantial monthly portfolio of credit card sales.  A restaurant can get an advance against their merchant credit card account in order to compensate for future cash shortfalls.  A merchant cash advance is a valuable cash flow tool that can help a restaurant through slow sales periods.  The benefits to a restaurant owner 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 merchant cash advance can take the fear and uncertainty out of cash flow shortfalls.  Restaurant owners can benefit by adding this flexible financial tool to their management toolbox.

Oil is in the news and on everyone’s mind.  Whether the news is about the latest oil spill or the cost of a barrel, everyone is talking about oil.

What most folks don’t realize is that although the cost of a gallon of gas is continually on the rise, very little of that money goes to the owner of a gas station; most of the money goes to the wholesale cost of the gas and to state and local taxes.  Gasoline is the magnet that attracts consumers to the gas station, but once there, the business owner hopes to sell the consumer something other than gas.

Profits Are In Retail

In the past couple of decades gas stations have shifted away from traditional services like auto repairs and towing.  The trend has been to convert service bays into retail space.  Gas stations have become convenience stores, and are offering coffee, sandwiches, sodas, cigarettes, candy and more.  Retail is where the profits are; a gas station makes as much profit on a super-sized cup of coffee as they do on a tank full of gas.  

Store Traffic Drives Sales

In order to make retail sales, a gas station needs lots of people walking through the door.  When the weather is bad, or when the price of a gallon of gas goes through the roof, store traffic slows down; and when it does, retail sales suffer.  When retail sales suffer, cash flow and profits suffer and the business has a hard time paying its bills.

Bank Credit Isn’t Available

Banks hate to loan money to gas stations; they see the risks as too great.  Here’s how a bank see a gas station:

• Gas stations are a cash business.  Verifying cash flow for a gas station is harder than for commercial rental properties. 
• Gas stations have perceived environmental risks and the liability associated with such risks.
• Because banks don’t know anything about running a gas station, they are unable to run the station if they have to foreclose on the loan.  All they can do is sit there and accumulate losses while they wait for a buyer.

A Merchant Account Is an Ace-In-The-Hole

Most purchases at a gas station convenience store are paid for with a credit card.  Gas stations generally have a very active merchant account.  Since credit card sales are frequent and somewhat predictable, gas station owners can get an advance against future credit card sales whenever they get into a cash crunch.

Easy to Qualify

Unlike a bank loan, 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
• 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

With a merchant cash advance, gas station owners will be able to continue to make their payroll and cover their expenses when there is a temporary downturn in business.  A merchant cash advance is a valuable financial tool for gas station owners.

No Fixed Repayment Period

No matter what kind of loan you get: mortgage, auto, or personal, there is always a fixed repayment period.  Generally, a mortgage is fifteen or thirty years, a car loan five or six years, and a personal loan three years.  Sure, you can pay it off early if you are able.  But, in the meantime, the bank has your equipment, house, or other asset as collateral.

With a merchant cash advance, you simply agree to sell a certain percentage of your credit card receivables at a discount to the cash advance provider.  The provider collects the payments directly from credit card receipts.  The time it takes to repay the advance will vary according to your credit card sales.   

No Fixed Monthly Payment

No matter what, you know that you will be making the same monthly payment to the bank every month for the life of the loan. 

Repayment of a merchant cash advance is much more flexible.  Since your sales will vary from month to month, the amount collected by the provider will vary from month to month. 

Benefits Cash Flow

The problem with making a fixed monthly payment on a bank loan every month is that there isn’t always money available to make the payment.  When business is good, and you have plenty of cash, it’s easy to make the fixed payment.  But, when sales are down, making your payment is a struggle.  If you can’t make the payment, you are in default of the loan.  Your delinquency will be reported to the credit bureau, and your credit score will be affected.  When your credit score goes down, it will affect the interest charged on your credit cards and the amount you pay for insurance.  Your ability to borrow in the future will be negatively affected.  In a worst-case scenario, the bank can seize your collateral.

A merchant cash advance is cash-flow friendly: you pay more in good months, less in slow months.  Simple.

No Interest Rate

Banks charge interest on their money.  They have lots of complicated formulas to arrive at what interest rate they will charge you.  Your creditworthiness, risk factors, collateral, and repayment term will all be considered when they decide how much interest you will pay.

Interest is not charged on a merchant cash advance; it can’t be.  Interest calculations are based on borrowing a fixed amount of money for a pre-determined amount of time.  Since a cash advance has neither fixed payment or fixed length of time, interest cannot be calculated.  Instead, a portion of a business asset – credit card receivables – is being sold at a discount.

No personal guarantee

If your business doesn’t repay a bank loan, they can come after the loan signer for the balance due.  The persons who signed the loan document: all of them; are responsible for the repayment of the loan.  Failure to repay can result in wages or bank accounts being garnished and liens being placed on homes or other assets. 

Merchants do not personally guarantee their credit card advances.  Of course, merchants who fraudulently enter into a merchant cash advance are open to prosecution.  For honest merchants who operate with integrity, a merchant cash advance is a valuable financial tool.   

There will likely still be much discussion about whether or not a merchant cash advance is better than a bank loan.  Only you can decide which is best for your business.  But for many small businesses today, the above five reasons are convincing.

Fast Cash When You Need It

A quick business loan can help an HVAC business grow and stay profitable.  The business benefits 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

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
• 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 can take the fear and uncertainty out of seasonal sales fluctuations.  HVAC companies can benefit from adding this flexible financial tool to their management toolbox.

Plan for the Slow Season

Summer will be hot: an HVAC business will service more air conditioners and sell more A.C. equipment.   Winter will be cold, and HVAC field technicians will spend their time repairing furnaces.  In the Spring and Fall, it’s anybody’s guess what the weather will be like. A successful HVAC contractor who recognizes the cyclical nature of his business can keep his business running smoothly no matter what the weather with a quick business loan.

Prepare for Equipment Breakdowns

It’s important to keep funds available for servicing your equipment.  Nothing impacts revenue more than having a full service schedule and having a truck break down.  You can’t just go out and rent a fully-outfitted HVAC service truck.  A merchant cash advance can get you back on the road quickly.

Bid on Big Contracts

Big contracts mean big profits, but they also mean a large initial cash outlay for the contractor.  A quick business loan allows you to buy the equipment and supplies you need without stretching your credit limits or getting behind in your bills.

Invest In Growth

Getting a bank loan to grow your company is often difficult.  Nine out of ten small business loans are turned down by banks.  You know how it is: you have to prove you don’t need the money before they will lend it to you.  A merchant cash advance is easy to qualify for and can provide your company with the money it needs to grow.

A Valuable Tool

How well an owner runs his business during both the busy season and slow season can mean the difference between success and bankruptcy.  It’s important not just to maximize revenue in the busy season, but to manage cash well so that there will be some funds available to pay bills during the slow season.  A quick business loan through a merchant cash advance can be a valuable tool for the owner of an HVAC business.

Now, it’s time for the dirty work, finding great furniture and other renovation items, for a great price.  You’ve already made a great business decision with your business cash advance.  Use the following information to keep up the good work.

Wholesale

If renovating an office space with multiple desks, chairs, etc. buying wholesale may be a great way to save money.  Lots of wholesale sites will offer discounts for those who buy in bulk.  There are even wholesale sites that offer discounts on single items.

Recycle

Renovating used office furniture is a great way to save money on a business renovation.  You can reinforce and repair broken and/or damaged pieces.  You can also change the color and/or style of used items.  Doityourself.com offers great tips on reusing old furniture and furniture parts.

Overstock

If a company makes or buys too much of a certain item, or if an item is made incorrectly (wrong color/model, etc.), they often sell it to others for hugely discounted prices. Therefore, if you don’t want to buy wholesale, buying from places and websites that sell overstock items is another great option.  Overstock.com is one of the most popular overstock websites.

Microloans

As stated in a recent allbusiness.com article, “Microcredit originated in the Third World as a way to help poorer people launch very small businesses. But now thousands of U.S. entrepreneurs are turning to microcredit as an alternative to traditional lending.”  The article notes some of the key benefits of this type of loan to be; business training (microlenders are required to offer training to small business owners receiving the loans), flexible requirement, the ability to build credit and the significantly less amount it time it takes to receive a microloan in comparison to a typical bank loan.

Counting on the Future

Some small business owners are literally banking on their futures.  “Through an online marketplace called the Thrust Fund, the three have offered up a percentage of their future lifetime earnings in exchange for upfront, undesignated venture funding,” (Inc.com).  The entrepreneurs are offering 6 percent, 3 percent and 3 percent of their future earnings in exchange for $600,000, $300,000 and $300,000 in upfront cash.  Some small business owners don’t agree with this method of business funding.  Still, others feel that it may be worth it, to get their businesses going in the direction they want.

Business Cash Advance

The business cash advance is yet another type of business funding that small business owners have been increasingly using.  It gives entrepreneurs the chance to get up to $500,000 for their businesses and it comes with a variety of benefits:

• Unsecured
• Minimal requirements
• Flexible repayments
• No restrictions on usage
• Renewal options

*Have you used an alternative funding method to get funds for your business?