1. Read the contract – Always, and I repeat, always fully read the entire contract including the fine print. As business owners, you are very busy, but do not sign anything until you have read the contracts and fully understand everything stipulated. Ask your merchant cash advance provider these questions, but always confirm by reading the contracts. This is good idea not only for a merchant cash advance, but also a good rule for any contract that you sign in life. If there are any questions in the contract, ask your merchant cash advance provider, and then ask your lawyer to confirm.

2. Understand the program – Ensure that you understand exactly how much you are paying back to the lender, and what percentage the lender will take from your credit card receivables. Make sure that this percentage is consistent with business performance, i.e. if you drop below a certain value for Visa/MasterCard sales a month that the cash advance provider won’t take a higher percentage of receivables. If the advance is variable, then understand the risk involved.

3. Fees – Often there are fees attached to the merchant cash advance. These fees can be charged by both a direct lender, and also by a broker. Many merchant cash advance providers will charge fees on the UCC filing, switching processors, Lockbox account setup, service fees etc. Ask the merchant cash advance provider if there are any additional fees. Again, these fees should be outlined in the contract

4. No attached collateral – A merchant cash advance is NOT a business loan. It is actually a purchase and sales agreement. This is why merchant cash advance companies can pretty much charge whatever “interest rate” they want for the money. As such, it is generally accepted that in the industry there is no collateral attached to the advance. Make sure that there are no variables – i.e. minimum payments, consequences if failure to make payments etc. Ensure that there is no collateral attached. I have seen a few contracts from companies that contain stipulations about
appropriating the merchant’s property if there is failure to make
payment or if the business fails. If there is an additional collateral addendum and
stipulations, make sure that you understand all of them.

5. Do your homework! – Inquire with multiple companies about obtaining a merchant cash advance. Do not submit paperwork to too many companies, as too many credit inquiries will lower your credit score, and can possibly scare other cash advance companies from working with you. Read forums about the industry and about the companies. You will be surprised how much information you will find on the internet about cash advance companies. There is no shortage of companies out there, but understand which company you are dealing with. Are they a broker? Are they a direct-lender? Don’t take the salesman’s word for it – do the research yourself.

Los Angeles will be tracking bank’s investments, specifically who they are lending to and where geographically they are located.  They will also be looking for those banks who are modifying mortgages.  While the national unemployment rate is 9.7%, Los Angeles’ is 13.7%.  The idea is that the more people that will be able to hold on to their homes, the more that will stay employed, and the better businesses will perform.

The city’s new banking legislation will require all city banks to submit a yearly investment report, going beyond the already existing 1977 legislation, the federal Community Reinvestment Act.  “We have a lot of power with our investments,” says Alarcon, who represents part of the San Fernando Valley. “We want the banks to know that the health of the community is more important than a low interest rate.”

The American Bank Association acknowledges what the Los Angeles city council is doing, but says that there will have to be some sort of balance  between remaining competitive and turning a profit, and helping the community.  Uneconomically sound moves won’t help anyone.  Similiar programs have been considered in Massachusetts, Maryland, Pennsylvania, and Minnesota.

For the original AP Article

The Obama administration extended an additional $1.8 billion in SBA backed small business loans. The initial program was for $750 million and helped stimulate small businesses by guaranteeing 90% of the funding and by waiving application fees.  The stimulus was depleted by November 23rd.  In December the government extended another $125 million which lasted until February.

New applications will resume on March 10th, whereby already existing applicants in the SBA queue will be approved and then subsequently the new applications

The legislation comes through as many small businesses which have made it through the economic recession are attempting to climb back on their feet by unsuccessfully accessing money through local and large banks.  The funding for the program would come from implementing temporarily a surcharge on individuals with incomes over $500,000 and couples over $1,000,000.

It doesn’t seem that the real problem in today’s economy is a lack of money.  Banks have received billions of dollars in bailout money.  Rather than a shortage of money, it seems more likely that large institutions are simply mismanaging their money, and in addition are not interested in investing in small businesses as they are riskier investments.  We saw this past year that corporate America was bailed out by the government, but small businesses were allowed to go bankrupt.  A bank’s investment is far more secure with a large institution.

For this reason we will see a growth this year in merchant cash advances.  A merchant cash advance provider will loan a lump sum of unsecured cash to a merchant who is processing Visa and MasterCard sales.  The merchant  pays a flat rate fee for the money which is typically more expensive than a traditional bank loan.  The lender collects his money back by taking a percentage of the merchant’s Visa and MasterCard sales.

To learn more about merchant cash advances click here!

To read the original Baltimore Business Journal article click here!

The money will come from the $700 billion in payback from the large bank bailouts. In addition The President also is proposing to extend a $38 billion tax break to small businesses, allowing them to write off equipment and investments more quickly.
The President blamed much of the economic recession on corruption in Wall Street and in a speech that referenced letters from various small business owners from around the country, Mr. Obama reassured small businesses that the rest of the government’s recovery planned would be geared towards helping them rather than large businesses and banks.

Many small businesses have closed in the global economic crisis, and the ones left standing have found it nearly impossible to receive funding from banks. However, many skeptics, including Jim Blasingame of The Small Business Advocate Show, are claiming that banks don’t lack the money to lend to businesses, but rather businesses are not in a position to receive money. In addition, some are asking what kinds of strings are attached to the money.

The President also proposed a tax initiative for small businesses who hire new employees or raise wages. He also supported a plan that would eliminate capital gains tax on small business investment. “The idea to make hiring easier for small businesses is a good one,” the National Small Business Association said in a statement last night. “Unfortunately, when polling our members, few believe that a hiring tax credit—which would likely be temporary—would be incentive enough to take on new employees, particularly given costly benefits. In many cases, people who take advantage of this tax credit would have hired the new employee regardless.”

To read the original US News article click here!

To read about alternative methods of funding click here!

Taxpayers and small businesses owners are frustrated as billions of dollars were pumped into the financial system in order to save large banks, but the situation of small businesses has not gotten better as they have not seen much relief and banks continue to tighten their lending.

The banking system has developed stricter underwriting criteria for loans, as they want to cut out bad debt and invest in businesses that have a high chance of paying back the loan. There is currently legislation passing through Congress that would make it more expensive for banks to operate.

“You’ve got to really give that money back to the source that’s going to provide the most amount of jobs, the most amount of economic stimulus for the economy,” Shallal said. “That’s small businesses.”

To see the original CNN article click here!

To learn about merchant cash advances click here!

In truth it is reasonable for banks to be hesitant to invest in these types of small retail businesses in the current economic crisis. Banks have other fish to fry, like billions of dollars worth of loans to pay back TARP government money, and defaulting mortgages. Why should a bank invest in a risky small business that has not turned over a profit yet?

This is precisely the type of business that should seek out a merchant cash advance. New retail shops, restaurants, and salons that are looking to expand and infuse working capital into their businesses aren’t going to be able to receive financial funding from banks. There is simply too much risk that these businesses won’t be able to pay back a loan over the course of a few years. There is a greater chance that these types of businesses will no longer be there in a few years.

Ms. Gillerman could obtain a significant amount of working capital for her business by applying for a merchant cash advance. A merchant cash advance is a short term “lending” program, whereby the private lender purchases the merchant’s future credit card receivables at a discounted rate. The amount of money the merchant qualifies for is based on how much they process in Visa/MasterCard generally over a span of one year. From this the private lender can predict how much the merchant will be processing in the future, and can build a program whereby he can expect to be paid back within usually four to nine months. The funding is more expensive than traditional bank loans, but it can help many businesses who are seeking to expand, pay dept, or just have some extra cash when businesses is tight.

To read the original New York Daily News article click here!

To apply for a merchant cash advance click here!

“Bank of America is determined to do our part to help the economy grow next year and reduce unemployment by making every good loan we can make,” Mr. Lewis said in a statement.

Mr. Lewis acknowledged the large role that small businesses play in the American economy and reaffirmed Bank of America’s commitment to supporting these businesses. Yet Bank of America’s lending dropped 90% in SBA backed loans this fiscal year to 308 totally $17.6 million compared to last year’s 3,354 SBA backed loans totally a $121.4 million. While SBA loans online compromise a small percentage of total loans to small businesses, it still is a strong indicator of market trends.

Bank of America experienced a 16% default rate on small businesses loans, as Ken Lewis was quoted referring to this bad debt – a “damned disaster.” That’s over $2 billion in bad debt in comparison to a 1% default rate with commercial loans to large companies.
Bank of America is the second largest small business loans bank, next to Wells Fargo, and according to the treasury department, ended September with close to $42 billion in outstanding small business loans.

To read the original CNN article click here!

To read more about merchant cash advances click here!

Few banks have signed up for extra money from the government which would be used to aid small businesses and a $15 billion program to buy securitized small businesses loans announced in March still has not started.
Treasury secretary Geithner has come under increasing scrutiny as he has become known more as a secretary of Wall Street rather than a secretary of the treasury for the public. According to a current Bloomberg Poll, 33% of the public viewed him unfavorable compared to 25% who viewed him favorably.

Obama blasted Wall Street and banks over the past weekend, asserting that lenders have a responsibility now that they are back on their feet to help rebuild the economy.  Small businesses have suffered the most in the recent economic recessions as banks have tightened their credit lines despite the fact that small businesses employ more than half the nation and have comprised more than 60% of new employment over the past 15 years.  Small businesses have higher expenses than large businesses and rely on 90% of their working capital from banks in comparison to large businesses who rely on 30% of their working capital from banks.

Many small businesses have searched for other methods of private funding like merchant cash advances and equipment loans.  While these loans are generally more expensive than traditional bank loans, with the current market, these businesses may not have much of a choice.

To see the original Bloomberg article click here!

To Read about merchant cash advances click here!

On Monday, Citigroup announced that it will sell $20.5 billion in stock and debt in order to repay the TARP loan. Yet the government still owns a large chunk of the stock, 34%, and plans to sell an additional $5 billion of its holdings as the bank repays TARP, and it will continue to own 23% for at least another six months to a year.

While Citigroup Inc. stock, “C,” fell 8% on Monday after the widely expected news was released, in the long run, the repayment of TARP money is good for stock holders as the bank bought its freedom from the government. The depreciation in stock was due to the bank’s need to offset the loss of government guarantees to block bad securities connected to defaulted mortgages, and the bank’s decision to raise $20 billion in trust securities that the government owns in TARP money.

There is still a long way to go for Citigroup Inc., but perhaps we are finally seeing the beginning of the recuperation of the financial sector as Bank of America last week announced it is repaying its TARP loan by raising $19.3 billion to repay $45 billion in government TARP money.

To see the original Wall Street Journal article click here!

To apply for a merchant cash advance click here!