Trusting Your Finance Provider: Viable Merchant Cash Advances vs. Scams

 

There are more ways for merchants to secure money for their businesses than ever before. It wasn’t long ago that a merchant either borrowed money from a bank or asked their father-in-law for a helping hand. But the small business financing market is evolving, and with so many merchant cash advance companies (also known as a business cash advance) popping up online and in your mailbox, how do you decide if a merchant cash advance is a good idea? How do you separate a cash advance scam from a legitimate, viable funding solution?

 

 

Prior to 2007-08, banks were in a financial position to lend to small businesses and merchants found access to capital to be a fairly straightforward process. If your credit score was solid and your business was stable, the chances of securing money from a bank were promising. Then the recession hit, the sky started falling, belt buckles tightened and merchants found it more difficult to access the money they needed to grow. However, years before the recession, technology had already started to change the financing landscape.

 

Merchant cash advances emerged as a viable option for merchants to get money quickly and securely well before 2008. A merchant cash advance has a simple application, very high approval rates and an automated payment model that works well with a business’s natural cash flow. These benefits helped the industry grow rapidly, but coupled with the recession and subsequent credit crunch, the market for merchant cash advances expanded exponentially. And of course, when the demand for a bank loan alternative rose, more merchants looking for money to buoy their working capital began to understand the benefits of the product, and business cash advance companies started popping up out of the woodwork. 

 

 

As long as you know that not all funders are created equal. Naturally, many of these “new” cash advance companies offering money for merchants are operating irresponsibly. They may not have enough experience in the business cash advance industry or expertise about the programs they’re espousing to responsibly fund your business. Maybe they’re irresponsible or ill prepared to handle a financing relationship (unacceptable when dealing with any company, let alone a company you’re trusting with your business’s finances), but in a worst case scenario, they may be closer to a cash advance scam. These predatory financing providers have short-term goals and no real investment in the success of your business. They may be offering you a significantly higher amount of money than your business can dutifully pay back.

 

 

1. Business History: How long has the company been in business? The industry is relatively young, but its leaders, the most trusted and successful companies on the market offering merchant cash advances, have been operating for more than just a few years and have funded tens of thousands of merchants across the country.
2. Trade organizations and ratings: Is the company a member of respected organizations and rated highly by consumer agencies like the Better Business Bureau (BBB)?
3. Contact Accessibility: When you reach out to them, do you speak to a real person that can answer all of your questions? Do they have a phone number and valid business address on their website? If you get redirected to an outsourced call center or a legitimate web presence is nowhere to be found, that should raise questions about their capacity to provide support during a business cash advance relationship.