{"id":225471,"date":"2023-08-08T18:00:31","date_gmt":"2023-08-08T18:00:31","guid":{"rendered":"https:\/\/www.markperlbergcpa.com\/business-cash-advance-a-loan-alternative-for-atlanta-businesses\/"},"modified":"2023-08-08T18:00:31","modified_gmt":"2023-08-08T18:00:31","slug":"business-cash-advance-a-loan-alternative-for-atlanta-businesses","status":"publish","type":"post","link":"https:\/\/prosperlcpa.com\/blog\/2023\/08\/business-cash-advance-a-loan-alternative-for-atlanta-businesses\/","title":{"rendered":"Business Cash Advance: A Loan Alternative for Atlanta Businesses"},"content":{"rendered":"
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This year has been a less-than-fun rollercoaster in the world of finance.<\/span><\/p>\n

Well, good news on that front \u2014 no more recession bogeyman lurking under the bed, at least that\u2019s what <\/span>the Fed declared<\/u><\/span><\/a> as they raised rates again last week. Doesn\u2019t mean more interest rate hikes aren\u2019t ahead or that inflation\u2019s fully cooled, but things appear<\/u> to be balancing out.<\/span><\/p>\n

Even with this silver lining, there are still some darker clouds hanging around when it comes to borrowing for your biz. It doesn\u2019t mean you don\u2019t have options, just that things are a bit tougher right now in terms of borrowing to get some extra cash.<\/span><\/p>\n

That\u2019s one reason I\u2019ve been talking more and more about loan alternatives with my Atlanta clients. Because, even if it\u2019s difficult, it doesn\u2019t mean you should give up on finding new ways to expand your business and make improvements. You just might need to be a little more creative.<\/span><\/p>\n

I\u2019ve got some ideas on that, but they\u2019ll also depend on your particular situation. If you want some guidance on these matters, I\u2019m here for you, :<\/span>
calendly.com\/mark-perlberg-cpa<\/a><\/strong><\/span><\/p>\n

Today I\u2019d like to give you some details on a loan alternative that might help you circumvent the difficulties with borrowing right now, something called a business cash advance\u2026<\/span><\/p>\n

<\/span>Business Cash Advance: A Loan Alternative for Atlanta Businesses<\/strong><\/span> <\/span>
\u201cPut not your trust in money, but put your money in trust.\u201d \u2015 Oliver Wendell Holmes<\/i><\/span><\/p>\n

When your <\/span><\/span>Fulton County<\/span> <\/span>company needs a little extra change, the first option you consider is probably loans: an infusion of cash that you pay back (if your credit\u2019s good enough to get one in the first place). <\/span><\/p>\n

But a loan isn\u2019t the only option for a cash infusion, though. There\u2019s another option that comes with its own advantages\u2026 as well as disadvantages: a <\/span><\/span>business cash advance (or a merchant cash advance, MCA for short)<\/span><\/span>.<\/span><\/p>\n

Let\u2019s take a look and see if this is a finance option for your biz and if it is, what you\u2019ll need to prepare for if you decide to take one. <\/span><\/p>\n

Banking on your future<\/strong><\/span><\/p>\n

With <\/span><\/span>a business cash advance or (MCA in this case)<\/span><\/span>, a financing company advances you a lump-sum amount of cash against your future revenue at, ostensibly, 0% interest. You agree on a fixed payback amount (aka the Purchased Amount) and have to immediately begin making frequent repayments \u2014 daily or weekly \u2014 until the advance is paid off. <\/i><\/span><\/p>\n

There\u2019s no loan involved. The MCA company is taking a portion of your future credit and debit sales and charging you what\u2019s called \u201ca factor rate.\u201d Let\u2019s say you take a grand in advance and it comes with a 1.5 factor rate. The total amount you\u2019ll have to repay is 1,000 dollars times 1.5, or 1,500 dollars. <\/i><\/span><\/p>\n

Obviously, these deals aren\u2019t for every business; for some, they could be downright dangerous. But let\u2019s look at the pros and cons, anyway. <\/strong><\/span><\/p>\n

Yay for no regulations<\/strong><\/span><\/p>\n

Credit is no factor. <\/i>MCA companies are relatively unregulated, and one of the few advantages of that is they can make advances in unconventional ways \u2014 including ignoring credit ratings (though many MCA companies don\u2019t). This can open a flow of capital if you\u2019ve had trouble getting mainstream loans. <\/i><\/span><\/p>\n

You get cash fast. <\/i>Unfettered by most regs, MCA companies can get you money in days. That\u2019s a real boon if you have a deadline and the investment you want the money for will improve your bottom line to cover the <\/span><\/span>business cash <\/span><\/span>advance and its factor rate. (Be certain <\/i>it will\u2026)<\/span><\/p>\n

Watch out<\/strong><\/span><\/p>\n

They get their cash fast, too. <\/i>Just last year, the Federal Trade Commission said this in a news release about <\/i><\/span>defendants (who used \u201cdeceptive and illegal means to seize assets,\u201d by the way) in one business financing case: \u201c<\/span>Typically, a merchant cash advance company will make daily withdrawals from the business\u2019s bank account until the obligation has been met.\u201d<\/span><\/p>\n

That means you won\u2019t just get cash quickly, but you\u2019ll likely have to shell it back out quickly, as well.<\/span><\/p>\n

There is, in fact, \u201cinterest.\u201d<\/i> Let\u2019s say you have to pay off a 10,000-dollar advance at a factor rate of 1.3, or 13 grand. Let\u2019s say the MCA company gives you three months to pay it back. That\u2019s a 229% interest rate. Even if you stretch the payments to a year (12 months), that\u2019s still 57% interest. Fees for missing a payment can also be steep, and there\u2019s no benefit at all to you if you pay the debt off early. <\/i><\/span><\/p>\n

The future is unsure.<\/i> Your advance is against your future sales. If those sales don\u2019t happen, you still have to repay the amount. Defaulting is considered a breach of contract with the MCA company, opening the door to liens and collections on not just your business assets but potentially your personal ones as well.  <\/strong><\/span><\/p>\n

For real<\/strong><\/span><\/p>\n

Let\u2019s look at some actual MCA companies. With Credibly and Rapid Finance, you can get advances of up <\/i>to the mid-six figures, but you have to meet minimums in time of operation, revenue, and credit score (conditions similar to many MCAs recently). With CAN Capital, you can get an advance of just four figures, though there is an administrative fee and the factor rate can hit 1.48. Libertas Funding offers advances of up to a mil, but only says its factor rates \u201cvary.\u201d <\/span><\/p>\n

If you get into an MCA and find it chewing up too much of your revenue \u2014 or, worse, you\u2019re taking out more MCAs to pay off previous ones \u2014 there are mitigation methods. <\/span><\/p>\n