The press recently villifed high-interest financing as exploitative and predatory. Yet, savvy entrepreneurs use these tools to prosper. Here’s the truth. “Merchant cash advance.” “High-interest loans.” “Short-term loans.” “Bridge loans.” For business owners and individuals looking for quick, alternative funding sources, the names and loan types are many. No wonder most confuse them all as one big bad thing. As always, knowledge is clarity. Let’s review. Merchant cash advance: High on interest AND flexibility. Merchant cash advances are paid back through a percentage of future credit card earnings, and are therefore not considered loans. Based on this technicality, the industry remained largely unregulated during its inception in 1998. As is the case in many unregulated markets, some lenders took advantage of the lack of ethical standards by implementing extremely high-interest rates, hidden fees, and intrusive collection tactics. Instead of correcting debt and financial failure with fair loans and rates, these lenders led clients over the edge. Just Google it. Do a bit of research on ‘merchant cash advances,’ and prepare for a barrage of negativity. Basic definitions are disguised as warnings, with financial bloggers ready to unveil “The Ugly Truth” about “The Dangers of Merchant Cash Advances.” One particularly pessimistic title reads, “Death by a Thousand Payments.” The truth is that, as a form of fast, easy financing, merchant cash advance is actually a legitimate tool: like a hammer, it can build (or destroy) a business. What really matters is how you wield it. The need for alternative financing. According to Forbes, despite rising acceptance rates, only 28% of small business applicants get approved for traditional bank loans. Such financing favors established companies, leaving smaller businesses nowhere to turn. Why? Traditional lenders analyze companies in terms of numbers and liabilities, rather than recognizing them as human owners trying to do good work. Looking to fund a business startup? Exploring a new invention? Fuggedaboutit! “Everyone knows the SBA is a joke,” says David Kolb, lead advisor at MCH Financial, an alternative funding provider. “There’s no real startup financing available, unless you have equipment to collateralize.” With no safety net, small businesses often fail, creating a less diverse, more monopolized market. To combat that, Kolb and his team focus on creative financing alternatives “based on personal credit and merit.” Short-term bridge loans: A sheep in wolves’ clothing At MCH Financial, merchant cash advance serves two purposes: 1) as part of a larger plan for financial independence, and 2) as a learning opportunity to inform other, safer funding programs. Unfortunately, bridge loans are often lumped together with merchant cash advances. But they are NOT the same thing. In fact, what unethical lenders perceive as an opportunity to take advantage of a situation, ethical lenders leverage as a chance to help families survive and avoid debt. Like MCAs, bridge loans offer: √ Easy application process √ Lenient approval criteria √ Zero collateral required √ 24-48 hour funding Unlike MCAs, bridge loans offer: √ No repayment from daily operating revenue √ Generous grace period before repayment √ Time and latitude to restructure finances Used properly, bridge loans help businesses stabilize before the loan is due. They provide funds quickly, enabling payment for projects, deals, rent, payroll, new purchase orders—whatever the business needs to stay afloat. Then comes the rest of the plan. Kolb says his […]
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