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    2 Replies Latest reply on Nov 28, 2009 9:31 AM by phanio

    As a merchant, would you choose a cash advance?

    CapitalExpert Newbie

      If the opportunity came along to secure working capital for the Holiday season, and the potential for growth was worth the cost of the money, would you take it? If not, why? I would like to open a discussion with business owners to get their opinion on cash advances.


      • 1.) Have you ever taken a cash advance?
      • 2.) Would you take one again?
      • 3.) If not, what factors would hold you back?


      I would appreciate any feedback (be it positive or negative) on this subject.
        • Re: As a merchant, would you choose a cash advance?
          amspcs Ranger
          We have brokered several cash advances for our merchants. We don't particularly endorse them, nor do we 'push' them. However we 'd much prefer that our merchants do business with us than with some of the shysters out there, and by and large our merchant base agrees with that, knowing full well that we are trustworthy. We try to be as forthright as possible about what cash advances are, and what they are not.

          Are they cheap? No.
          Should the merchant look to his banker first before contemplating a cash advance? Positively.

          But times being what they are, unfortunately a lot of good deserving people are turned away by traditional lenders. That's where cash advances come in. If the funding is absolutely necessary and the business comes out better off in the end as a result of doing
          the cash advance, then absolutely that's the way to go. Particularly in these tough times in which for many small businesses the alternative to not getting necessary funding is to shut down.
          • Re: As a merchant, would you choose a cash advance?
            phanio Pioneer

            Business cash advances can be expensive when compared to traditional lending. However, if this is your only option when taking advantage of a growth opportunity then it is really not all that expensive when compared to missing the opportunity all together.


            If the benefits out way the costs - then you have a positive effect which should benefit your business.


            I have an MBA in Finance - one of the biggest concepts in finance is "net present value." While this may be a bit complicated in corporate finance - the concept is very simple.


            If you are presented with one or two or more opportunities to make money for your business - you start with the one that has the largest net, positive effect on cash flow as you should always employ capital in the most advantageous manner possible. You do this by estimating the net cash inflow from the opportunity (discounted back to today) then subtract out the costs of generating that income stream.


            How this relates to you: If you have an opportunity to increase your income - an opportunity that provides more benefit then its costs (even just one dollar more) than it is a positive net present value project and, if no other options (other positive net present value projects) are available - this should be acted upon.


            Now, if you plan to take on this opportunity, your task is to reduce as much as the costs as you can. You should research all the funding options that are available to you - rank them - then take the top one if you can or if not move down the list. Keep moving until you succeed or the costs start to outweigh the benefits of the income stream.


            Example, lets say that you have an opportunity to earn $50K net income with a new project provided that you can get funding for it. You have outlined two options for funding. 1) Traditional bank loan that will cost you $25K when all is said and done and 2) a business cash advance that will cost you $35K when all is said and done. Of course you will pursue the traditional bank loan as it is cheaper and the total net effect is greater for your business. But, what if you don't qualify for that bank loan? You now have two options - take the business cash advance and net $15K for your business ($50K -$35K) or walk away and net nothing ($0).


            Business cash advances are not for every business and should only be used to take advantage of opportunities to that provide a positive net effect (meaning with these funds, you bring in more money than it costs for those funds - net any other expenses).


            Additionally, business cash advances are short-term financing vehicles - thus, they should only be used for short-term financing needs like operating cycle working capital or growth development that has less than one year pay back. If you need long-term financing - then look for long-term financing vehicles.


            If you want to know if a cash advance is right for you - it depends on you and how you manage the advance funds. What may not work for one business could work for another - it is all up to you.


            Business Money Today