Commercial Financing and Business Cash Advances

The use of business cash advances has been a commercial financing option for several years, but most businesses chose other funding sources to get needed working capital. The current chaos in business financing options has substantially changed how merchant cash advances should be evaluated by small businesses. While there are still other choices which should be considered, the practical reality for most business owners is that the alternatives to get operating cash quickly have changed.

Many businesses throughout the United States have been scrambling to locate new commercial loans. What changes have occurred to make business cash advances a more feasible funding strategy? Here are four of the key factors behind the rapidly-changing environment for working capital financing.

First, a growing number of banks (especially local and regional banks) are exiting business lending. In some cases, the commercial lending focus has shifted to larger businesses with long-term ties to a bank. This has produced an immediate working capital funding shortage for new and small businesses in a challenging economic environment.

Second, unsecured lines of credit have all but disappeared for most small businesses. For many years this was a popular method of commercial financing.

Third, many business owners had relied upon home equity lines of credit for a simple and quick source of business cash. In response to a nationwide residential funding crisis during the past year, most banks have eliminated or reduced home equity loans.

Fourth, banks are increasingly requiring more collateral for almost all commercial loans. Providing additional collateral is not a feasible alternative for most small business owners.

The four commercial financing trends noted above have resulted in most business owners needing to look much more actively at business cash advance programs which enable businesses to obtain working capital financing based upon their credit card processing activity during the past year. At the same time, this commercial funding strategy does have some limitations and pitfalls to avoid.

A major pitfall of working capital advances is the growing presence of predatory lenders. These lending groups should be avoided and usually have one of the following negative characteristics.

Business owners should watch out for excessive urgency exhibited by the lender to change the credit card processor used by a business. While there will sometimes be legitimate reasons for revising the credit card processing, such changes should never be the first priority in a business cash advance program. If there is a rush to do so, it is probably an attempt to obtain processing fees even if a working capital advance cannot be provided.

Business owners should also be alert for widespread misrepresentation about how quickly business cash advances will be provided. Business owners should be skeptical of agents who suggest that financing is routinely available in a week or less. Legitimate funding will typically be obtained in about three weeks.

In order to avoid potential entanglements with one of these predatory lending sources, business owners should have a lengthy discussion with a prospective lender prior to taking any action. Business borrowers should especially avoid completion of any online business cash advance applications without first having a personalized conversation with a funding adviser that you consider to be a working capital financing expert once you have completed a thorough discussion.

Commercial Financing
Advice and strategies for avoiding commercial financing problems.