Some DOs and DO NOTs of Business Debt
“Applying for Business financing and loans, and then managing them, can be a stressful process.”
Some DOs and DON'Ts of Business Financing
DO consider these types of Business Debt Financing-
Traditional bank loans. more difficult to secure, but generally offer more favorable and flexible terms.
Government loans. This includes SBA (Small Business Administration loan program, which may have more favorable rates than bank term loans.
Business lines of credit. You can use lines of credit repeatedly until they run out or you no longer need the funds.
Business credit cards. You can take advantage of the 30-Day float on credit cards which may end up being more cost-effective than more expensive than financing products.
Long-term loans. Typically offer larger funding amounts that you can repay over longer periods.
The best financing products or loans tend to be amortizations (loan term and payment schedule) that are 2-years or GREATER...
DO NOT consider these types of Business Debt Financing-
Merchant Processing Account Loan (Credit/Debit card "Splits"). You repay these loan with an agreed-upon percentage of a Business' future debit and credit card sales. The creditor providing the financing "holds back" or keeps a range of 8% to 17% or more of credit/debit card sales processed through a Business' merchant account. These are paid in daily, weekly or monthly installments and typically have a very high APR.
Merchant Cash Advances (MCA). A Business repays these Business Cash Advances or future sales agreements with a portion of your debit and credit card sales, and/or a portion of your sales deposits. These are paid in daily, weekly or monthly installments and typically have a high effective APR in excess of 36% and normally 50%+ effective APR.
Reverse Consolidations. Some Merchant Cash Advance (MCA) companies offer and market this financing product through unscrupulous "brokers" of Merchant Cash Advance (MCA). Reverse consolidation receivables sale agreements typcially provide weekly deposits to the Business to cover existing Merchant Cash Advance (MCA) payments for the week while taking a daily or weekly payment that add up to approx. 20% to 30% than is being paid out to the other MCA funders. A Business can get some temporary cash flow relief from this product, but the Business takes on more debt during a Reverse Consolidation so it does not solve the underlying cash flow issues nor the excessive debt levels within the Business.
"Brokers" of Merchant Cash Advance (MCA) and Receivable Sales Agreements, who generally know very little about Business and Finance. These "brokers" are compensated between 8% and 15% of the total funding by the Merchant Cash Advance (MCA) companies to sell you receivable purchase agreements. These "brokers" are not on your side. They work for the lender or funder and are only interested in the highest commission payout and NOT the best and most cost-effective financing product for your business.
Merchant Cash Advance (MCA) and Receivable Sales Agreement financing is a terrible strategy for Business owners to obtain financing.
These types of financing products are predatory AND force a Business to permanently GIVE AWAY a percentage of their sales (ex.- 1.3x factor or $100,000 received with a payback of $130,000 within 6-months is a 30% loss of sales or give away of sales)
There is no need to take these products and pay the ridiculous financing costs in excess of 40%+ (normally 60%+) effective APR.
BERNARSKY PARTNERS LLC can help you and your business navigate through the myriad of Business Debt options and we will always layout the PROS and CONS of financing options so that you can make the best financing decision for you and your Business.
Setup a FREE consultation call with us today if you would like to learn more
about Refinancing and Restructuring.
BUSINESS DEBT & CASH FLOW SOLUTIONS
Bernarsky Partners LLC is a business financial services advisory firm comprised of finance professionals with extensive industry experience offering Business Debt Solutions.
Some of our Business Debt Solutions include:
2. RESTRUCTURING BUSINESS DEBT
4. BUSINESS CASH FLOW ANALYSIS
Setup a free consultation call with us to review your business debt and cash flow situation, business goals and to discuss Business Debt refinancing and restructuring options.