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    15 Replies Latest reply on Apr 8, 2009 12:43 AM by amspcs

    Merchant Loans - Are they any good?

    AcuteHT Newbie
      There's lots of talk about merchant loans where they "loan" you money against your future sales via merchant services. Is this any good? Using this as an alternative to traditional bank loans that typically take a while or for smaller newer business that don't have enough collateral sounds like a good plan, but I'd like to learn more. Keep in mind, I'm an established business with an approved SBA loan so I'm trying to do some homework on alternate funding opportunities to grow a business and to get a good discussion going that will benefit other small businesses.

      Your thoughts...
        • Re: Merchant Loans - Are they any good?
          scsurfguy Wayfarer
          Well, It can be good if you have a plan on making more money for your business, but most people take out loans in order to pay personal finances. If it will benefit your business in order to increase your business, then yes. But if your using it to do other things, than no. The reason for this, is the fees associated with paying it back, and if you don't, you will be banned from accepting visa, mc. There are up's and down's with accepting any type of loan, it just depends on how you plan on using it. ITS A LOAN!! plain and simple.
          • Re: Merchant Loans - Are they any good?
            CorpCons08 Ranger

            Have you prepared a business plan for this small business venture? There are man sources of funding, but before you bite off more than you can chew it is very important to know how you plan on using the cash.

            • Re: Merchant Loans - Are they any good?
              DomainDiva Ranger

              I would imagine that the interest rates alone would make one very uncomfortable. Sometimes debt is unavoidable...but one should always be hesitant to enter into 'agressive interest agreements'.
              • Re: Merchant Loans - Are they any good?
                Lighthouse24 Ranger
                For all the "others" then, this seems like a real life math "story problem."

                Business A nets $5,000 a month. Business A could increase net profits to $7,200 a month by expanding its operation. The necessary expansion will cost $17,500. The owner of Business A, who is unable to secure a traditional loan, approaches a local "investor" who is willing to loan him the $17,500 provided the owner pays back $1,000 a month for the next two years (an annual percentage rate on the loan of 32.38 percent!). Should the owner accept the loan?


                If the owner doesn't accept it, his cumulative net profit two years from now will be $120,000.
                ($5,000 x 24 months = $120,000)

                If the owner does accept it, his cumulative net profit two years from now will be $131,300.
                ($7,000 x 24 months = $172,800, less $17,500 spent on the expansion, less $24,000 in payments to the "investor")

                So even while paying outrageous interest, the owner would achieve 5 percent annual growth. Over a five year period, the business would net $390,500 with the loan, compared to $300,000 without it. (I obviously didn't calculate the tax consequences of the loan interest or the additional profit).

                I don't think a business owner who has few other options can automatically dismiss a high interest loan just because it's a high interest loan. If you KNOW that an influx of cash will produce a tangible business return, then this is one of those cases where, "do the math" really is the right answer!
                • Re: Merchant Loans - Are they any good?
                  mlebovits Newbie

                  Two things to think about...

                  First, the effective cost of merchant loans is typically in the range of over 30% per annum.

                  Second, you might want to confirm whether or not the blanket lien your SBA lender likely has on your business assets precludes you from using merchant loans.

                  • Re: Merchant Loans - Are they any good?
                    MoneyforBiz Wayfarer
                    In your type of business it is a great tool based on not taking out additional loans and it being based off your future credit card sales....give me a call @ 866-283-5198 ....we do about 300 of these deals a month.....

                    • Re: Merchant Loans - Are they any good?
                      MMMThree Newbie
                      Business cash advance can be a good way for a business to get the funds they need - when other sources have said no. They are expensive. Business cash advances are not really loans but advance against future sales. The financier advances funds then takes a small portion of your future sales - say 5% - until the advance is paid back. - One good option is that if you have a slow month - you are not set with a fixed payment. They still only take a small portion of your sales - leaving you with some working capital to move forward.
                        • Re: Merchant Loans - Are they any good?
                          phanio Pioneer

                          You are right - expensive but some times the best option for businesses that don't have a lot of other choices (especially in times like these.)

                          Most Business Cash Advance financiers require at least a year in business and over $5,000 per month in monthly credit card volume (from Visa/Mastercard). However, there are other advancers that only require 4 months accepting credit cards and $2,500 on average per month. They also take into account how much your accept in debit payments, checks and cash - in determining your advance limit.

                          Business Cash Advances can be a great way for growing business to expand - but they have to be used properly. They should not be long-term financing vehicles. If your business is having a slow period or has an opportunity to grow right now - these are great - use them, pay them back and move on. If you try to use them as long-term financing - they get really expensive and easy to abuse.

                          Business Money Today
                            • Re: Merchant Loans - Are they any good?
                              wilfin Adventurer
                              Phanio.......excellent points!
                                • Re: Merchant Loans - Are they any good?
                                  amspcs Ranger
                                  Let's tell it like it is:

                                  Is cc receivable funding cheap? No.(although all are not created equally. It pays to shop. That's
                                  why we solicit proposals for our merchants from many sources, not just one).)

                                  Is cc receivable funding a much better alternative to losing one's business when funds from less expensive sources are unavailalbe due to tough times, poor credit, or whatever? Yes, of course !

                                  They are what they are. If other lending solutions are available, they should be sought out first obviously
                                  If there are no other solutions, then they are a viable solution.

                                  You can't generalize and blanket categorize something as good or bad. It all depends on the situation.
                                  I know of many a business who is still IN business thank only to the CC receivable advance that allowed
                                  them to survive and live to fight another day.