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Merchant Cash Advance: Part 4

Part 4 – Merchant Cash Advance How to Find Reputable Companies and Avoid Pitfalls

In parts one and two and three, I talked about what a merchant cash advance is, what the qualifications are, and  how it works.     In this segment, I will cover how to find a reputable cash advance company, and what pitfalls to avoid.

If you want to find a reputable merchant cash advance company there are several ways to do it.   I highly suggest that you get multiple quotes.  There are several reasons for this. The two most important reasons are you want to find a provider that will approve you and second, you want an advance on the best possible terms. 

Also, you want to speak to several companies and find the ones that have your best interest at heart. You have to remember that cash advances are more expensive than bank loans.  The cash advance provider should show concern about the financial health of your business and give helpful advice about how to grow your business and best use the funds.   The provider needs to take into account your interest if he hopes to get repaid. 

The cash advance provider should go over the agreement in detail.  You want to make sure there is full disclosure and that your questions are answered to your satisfaction. 

Once you’ve found a few companies that you are comfortable with, give them the customer service test.  Call their office early in the morning before they open and late in the evening when they are closed.  Leave a message for someone to call you back.  Then see how long it takes them to get back to you.  Go with the companies that are the most responsive, because this is a good indication that should an issue arise during your advance, you can get ahold of your representative quickly. 

Here are some pitfalls to avoid when choosing a merchant cash advance company.

 High Daily Retrieval Rates:

Variable Daily Retrieval Rates: 

Short Payback Periods

Dog Piling

Switching Card processors. 

The daily retrieval rate is how you pay back the cash advance provider.  The provider will take a percentage of your daily sales, usually through your credit card processing.  AdvanceMe, the industry’s leading merchant cash advance provider, did a study of 40,000 merchant cash advance transactions and found that high daily retrieval rates ruin businesses.   The rule of thumb here is to negotiate the lowest possible daily retrieval rate.  The typical range is 10% to 25%.  Anything over 25% is too high and can put your business into financial difficulty.  Neither you or your provider want that.   Try to negotiate down the daily retrieval rate.  It’s ok if that lower rate extends the payback period.  Actually that works out better for you.  There is no interest accruing with cash advances.

You should also avoid variable daily retrieval rates.  These are rates that go up after a period of time or if the retrieval amount falls below a minimum.   A merchant cash provider might arbitrarily adjust your rate upward without you knowing.  You should always check at least once a month on the daily retrieval rate. 

Dog Piling is a favorite scheme used by unethical merchant cash providers.   Basically, it is piling one advance on top of the other.   This practice is predatory and destructive and will ruin your business.   

Finally, avoid having to switch credit card processors if you can.  The switch can be a hassle and costly.  You may face early termination fees from your current processor and as well as higher rates from your new processor.   The lockbox provides a solution to switching. 

There you have it.  In all four segments we’ve covered about everything you need to know about merchant cash advance.  I hope these videos have been informative and please check back for more small business videos from Blindbid.  


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