The city of Miami is a thriving hub of culture, entertainment, and business. It is also one of the world’s international trade centers, ranked very highly for cleanliness and sustainable development. It is also an extremely affluent area, ranking among a half dozen of the richest cities in the United States. Commercially, Miami is home to a very large number of international banking concerns, not to mention many national and international corporations that call Miami home. There is a great deal of development in proximity to Miami’s Civic Center, including medical and research facilities, biotechnology concerns, and other medical ventures and hospitals. Miami is also a port city that boasts some of the planet’s biggest and most extensive cruise operations. Its port is incredibly busy with both freight, cruise line, and passenger vessels. Given all this business and commerce, it stands to reason that many of these businesses might find themselves in need of a merchant cash advance. Miami offers plenty of opportunities for local retailers and merchants to obtain these advances.
First, let’s explain what exactly what is meant by a merchant cash advance. Miami is not unique when it comes to merchant cash advance services. When a business takes such an advance, it agrees to sell a portion of its future sales in exchange for the infusion of cash that is the advance. It continues to give up that percentage of its sales until it can repay the advance. As you can imagine, if you compared this to an interest rate, it would be a relatively expensive loan, comparable to that made on a credit card, but it’s important to understand that a merchant cash advance isn’t actually a loan at all. There’s no specific repayment schedule and payment is flexible, tied to the rise and fall in sales. The business continues paying this percentage for as long as the advance remains outstanding. The benefit to the borrower is that he or she can obtain needed cash quickly when those liquid funds are required. The higher interest paid is the fee paid for this speed and convenience, not to mention the greater leverage the liquidity possesses inherently.
Merchant cash advances nonetheless can be very helpful, especially if using a credit card would expose the business owner to even higher interest rates. Cash advances can be put through much more quickly than traditional or conventional loans, so the merchant gets access to liquid cash faster than he or she otherwise might. And approval rates for merchant cash advances are typically very high, with relatively little paperwork necessary to fill out. In some cases, it’s possible to get the needed cash infusion same day or within a day’s operation.
Businessweek’s John Tozzi explains, “Small-business owners who need quick access to capital have a burgeoning industry eager to fund them: merchant cash advance providers. The decade-old industry has grown significantly in the past two years, to more than 50 providers, observers say, and the tight credit environment is fueling demand. As interest in their business grows, providers—who charge premiums of 30% or more on the money they advance—are trying to promote industry standards to avoid scrutiny from regulators. Cash advance providers offer businesses a lump sum payment in exchange for a share of future sales. They mostly target retail, restaurant, and service companies that have strong credit-card sales but don’t qualify for loans because they have bad credit or little or no collateral. The catch for takers is how much cash advances cost compared with interest on a loan or credit line. …Merchant cash advance companies take pains to point out that advances are not loans; instead, the deal is a “purchase and sale of future income.” That means that merchant cash advances are not bound by laws that regulate lenders and limit interest rates. Instead of requiring regular fixed payments, they directly collect a set percentage out of a merchant’s daily credit card sales until they recover the advance and their premium, usually in fewer than 12 months. Advance providers say businesses benefit because the amount they pay varies with their cash flow, so they pay less in slower months.”
Tozzi goes on to explain that he sees plenty of room for growth in the cash advance industry, as advance providers have penetrated only about ten percent of a market that could represent anywhere from five to ten billion dollars. “Some critics say merchant cash advance providers are simply lenders skirting usury laws,” he adds, but goes on to dispute this. The company that issues the merchant cash advance (Miami based or located anywhere else) is the company that assumes all the risk. There’s no collateral involved, and nothing securing the advance. The only money the advance company sees is the money paid in percentage of sales, and if the company didn’t have those sales, it couldn’t repay them at all.
Rob Misheloff, in Smarter Finance USA, goes so far as to call a merchant cash advance a “scam.” He writes, “As a husband and father, the best example I can set in the world is by helping others. That’s why I’ve built my career around helping my fellow business owners grow their companies. My hope is that this website and my company help you to grow your business and achieve your goals. …If you’ve read any of the articles on this website that mention a merchant cash advance, it’s no secret that usually tell our clients to avoid this product like the plague, but does that make them a scam? …Loan rates on these products are quoted as a factor rate, and typically if you compute the interest rate as an APR (the way a bank or a car dealer would quote you an interest rate) the numbers shake out to over 100% annual interest. …Let’s first be clear about what the definition of a scam is. There are outright swindles, like the whole Bernie Madoff thing, which was pure theft, but then there are also things that aren’t actually illegal, but anyone with an ounce of common sense would know that the people peddling them are either crooks or fools. For example, most people have a friend, or cousin, or a something, that decided they were going to become millionaires by getting you to sell vitamins or soap or some other idiotic thing to your friends, who would sell it to their friends, who would sell it to their friends, and along the way you’d all be driving Ferraris. Sound familiar? You probably also knew that the people at the top (the ones making all the money) were the crooks, and even though your friend or cousin meant well, they really thought they were trying to help you, and they really believed that you were all going to make out like bandits selling these silly things to one another.”
Misheloff, continuing to be horribly negative, goes on to ask whether those selling merchant cash advance (Miami based or otherwise) services are simply “well-intentioned morons,” which seems like a facetious questions. He answers it thusly: “Some of them are, certainly. The rest just don’t care that they are ripping off small business owners to line their own pockets. The companies that are the funders are typically run by smart guys that came from the credit card industry… They’ve been told that if they close a certain number of deals this month they’ll make $8,000 or something, and their career alternatives involve asking you if you’d like a side of fries. …Most brokers that have been at this a while will tell you their average customer renews three times. That is not evidence they are happy with the product. Go ask someone who has been suckered into the payday loan trap for three years if they’ve been well served by a payday lender. The truth is, merchant cash advances are a vicious cycle, just like the payday lending industry, and the folks that peddle these products will always have a rationalization as to how their product is ‘helping’ people.”
Misheloff is far, far too negative and paints a poor picture of those businesses that could offer your company a merchant cash advance. Miami businesses and businesses throughout the rest of the country would do well to note that his attitude is not shared by the industry as a whole. And even Misheloff admits that if you can’t get credit otherwise because you run what is considered a “risky” business or you simply have bad credit and low capital, a merchant cash advance may be one of the few options available to the borrower.
Nitasha Tiku’s piece for Inc. was similarly negative on the topic. “In a tight credit market, businesses sometimes take funding wherever they can find it,” she writes. “But money that seems easy now may prove extremely difficult later. That’s especially true with a fast-growing and risky new product for businesses, the merchant cash advance, or MCA. …Ideally, MCA providers offer companies with few financing options a quick, easy way to find funds in a cash-flow emergency. Some entrepreneurs like the arrangement because it allows them to repay less when sales are slow and more if revenue picks up. But it’s a pricey form of financing. Most business owners complete repayment within six months, so paying a 25 percent fee is equivalent to taking out a loan with an annual interest rate of 50 percent or more. …As the industry has grown, so has the controversy surrounding it. …Traditional banks are regulated by several state and federal agencies, but MCA providers are not, partly because legally they are buying receivables, not making loans. That technicality also allows them to escape state usury laws; about a dozen states, including California and Texas, prohibit unlicensed lenders (and sometimes licensed ones) from charging businesses exorbitant interest rates.”
Tiku goes on to point out that the fact that collateral isn’t needed for a merchant cash advance is very important to the deal overall. If you can’t pay back a bank loan, you might well risk losing your home. There is, however, no legal obligation to repay a merchant cash advance if the business itself fails, provided all the other contract terms are strictly followed. “They can’t encourage customers to pay in cash, for example,” she adds, “and they cannot switch credit card processors (typically, the MCA provider gets paid directly by the processor, rather than by the merchant). …If MCA providers suspect the contract has been broken, however, they sometimes aggressively pursue business owners for repayment.
By contrast, Merrin Muxlow’s piece in Women on Business was much more fair, and while she did offer some cautions, she also highlighted the advantages of a merchant cash advance. Miami is just one market in which you might seek such an advance, and Muxlow pulls no punches in describing what you need to look out for. “One of the first rules for survival in the Wild West also applies to business- resourcefulness, or making the best use of what you’ve got- is one of the best ways to make sure you survive tough times. With loan default rates higher than they’ve been in quite a while, traditional financing is becoming harder to find, especially for new or smaller businesses. If a loan is not an option, what can you do? One option is a merchant cash advance.”
The fact is, though, that good merchant cash advance (Miami based or otherwise) companies, like Infiniti Funding, will have great reputations, and these reputations will proceed them. Do the necessary homework and check out the prospective advance company before you choose. You’ll find that we, Infiniti Funding, are the best possible choice, and we can easily and happily service your needs for a merchant cash advance. Miami is an exciting city and a great place to do business. It’s also a great place to get the working capital you need, especially if you get it from Infiniti Funding.