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    4 Replies Latest reply on Nov 9, 2009 3:39 PM by ontiversmo

    The Truth about Cash Advance Factoring

    amspcs Ranger
      Being in the electronic payment industry, we get asked a lot about the cash advance against receivables programs offered by most processores these days. And judging from the number of posts on this forum from people in need of cash, this is developing into a huge industry. I thought I'd take a minute to publically post my responses to the questions I get almost daily on this subject.

      IS CASH ADVANCE A SCAM? There are lots of people out there in the cash advance business nowadays. Certainly, some are scam artists, others are not. But this is true of all industries. There are scam doctors, lawyers, bankers and so forth out there as well. The way to avoid being scammed is due diligence--do your homework, understand what you are signing, check references, deal with reputable people.

      IS CASH ADVANCE A GOOD SOURCE FOR BUSINESS FUNDING? Obviously cash advance can be more costly than traditional funding sources. So, also obviously, any business in need of cash should first visit their banker--cash advance is best viewed as a final resort.

      ARE CASH ADVANCE COSTS A RIP-OFF:? --Clearly, cash advances are not cheap. But whether or not it makes sense for any particular business depends on the circmstances at hand. As stated alrrady, if you need funding, your first stop should be your bank. But IF your bank is unwilling to fund you, and IF you have no other sources to go to, and IF obtaining the funding or not means the difference between life or death for your business....then you need to weigh your options. In most cases, absorbing the costs of cash advance funding is far better than the alternatives.

      ARE CASH ADVANCES EASY TO OBTAIN?--In many cases, yes. At the very least, they are easier than many other more conventional sources in terms of credit scores and other requirements. But there ARE underwriting requirements involved. If there is a way, a competent professional should be able to find it. As with any other lending sources, there are some lenders willing to assume more perceived risk than others, which of course carries a higher price tag per the risk/reward rule. Again, the trick for the borrower is to deal with a professional broker who knows where to look for such people.

      If anyone has questions or commens, please feel free to ask me.



        • Re: The Truth about Cash Advance Factoring
          LUCKIEST Guide
          The Truth about Cash Advance Factoring

          Barry, Thanks for your post
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          • Re: The Truth about Cash Advance Factoring
            phanio Pioneer
            Good post -

            Also keep in mind that business cash advances are short-term funding vehicles - they should only be used for short-term needs (i.e. - to finance your operating cycle). Plus, they should never be thought of as permanent funding. They can be used to get your business over an obstacle or if no other financing is available - to help move your business forward - but once your business is out of the woods - if really pays to seek more solid, longer-term funding options like bank Lines of Credit.

            Business Money Today
            • Re: The Truth about Cash Advance Factoring
              BizOptimizer Adventurer
              Unfortunately, most entrepreneurs are unable to calculate the REAL interest paid for such loans and are therefore unable to discern whether the benefit outweighs the cost. The costs are high - it would take a special project to justify such high capital costs - very few truly provide that level of payback. Be CAREFUL.
              • Re: The Truth about Cash Advance Factoring
                ontiversmo Wayfarer
                Dear AMSPCS,

                Great post - I appreciate those out there in the cash flow industry who work hard to dispell some of the myths of cash advances (factoring).

                As a direct funding source for clients seeking to get cash for their invoices, I know all too well the pitfalls in communicating how factoring works to those who have been scared away by all the horror stories out there. It's true, business owners seeking alternative financing must do some serious due diligence before they get in bed with a factoring company. Working with experienced brokers is a key to finding a good funding source. Good brokers can review the contract terms of competing factoring companies and discuss, in real terms (not contract terms) what the differences are between funding sources programs.

                There are thousands of ways to structure a factoring deal. For the business owner who is a novice with factoring - it's extremely important to know that many deals are not able to be compared apples to apples. Talk to a broker to de-mystify the transactions and contracts. Talk to your funding sources and ask them to provide a sample contract or terms that can be used to measure against their own competition. If the funding source is reluctant, then take that as a clue about their intentions. Most important, ensure you maintain as much control as possible by requiring the following:

                1. no early termination fees
                2. no term limit to agreement
                3. ability to factor whatever you want, rather than being required to factor everything
                4. if there are documentation / application fees, ensure that they get deducted from the first round of funding. never pay up front before you get funded.
                5. talk to an attorney about your agreement, make sure there's nothing in the agreement that will affect you negatively

                Kind Regards,
                Steve Ontiveros
                Resource Business Partners, Inc.