Merchant Cash Advance for Furniture Stores

IHFRA_logo_trimmedOne of Cornerstone Business Solution’s specialties is providing payment solutions for furniture stores and I am a proud member of the International Home Furnishings Representatives Association (IHFRA).  This organization is comprised of professionals and companies that service the furniture retailers.  I had the privilege of writing an article for their most recent newsletter and I’m posting it below in it’s original form.  This article was targeted to those selling to furniture retailers and to assist them in a little known finance option available to their customers, a Merchant Cash Advance.  To see the entire newsletter where this was first published, you can access the IHFRA site and newsletter here.

Money is No Problem!

As rewarding as it can be for a representative to work with furniture retailers, the job isn’t without challenges. No matter how great a salesperson you are, chances are you’ll eventually come to a roadblock where your client isn’t going to eagerly purchase your goods. There are three main reasons retailers don’t buy:

  1. They don’t want the product you are offering. Maybe they don’t like the line or don’t believe it will sell.
  2. They don’t believe or trust you. This means you’ll need to establish a solid relationship with them before they are comfortable enough to make a purchase.
  3. They can’t afford it.   While dealers may see the value and want the product, they just don’t have the money to buy right now.

The first two points can sometimes be overcome by a seasoned representative with a good offering, but many times circumstances cause a willing buyer to be without capital means. The great news is that lack of funding no longer has to be an obstacle! Traditional financing and relying on credit cards aren’t always enough to help retailers to afford more inventory-so if lack of capital is keeping your clients from buying, it’s time to offer a third option: a merchant cash advance (MCA).

Unlike traditional business loans, MCAs look at immediate cash flow and deduct micro-payments on a daily basis from an account (rather than relying on credit scores). The advance is then recouped based on credit card receipts—typically not more than 25% of daily card receipts go toward the repayment. A set amount can also be determined and deducted on a daily basis. MCAs are ideal for short-term loans (3-18 months) and are designed to secure funds quickly. And here’s more good news: your client most likely won’t even have to change credit card processors!

Setting up an MCA is fast and easy. Retailers can be pre-qualified in just minutes with a phone call, and they’ll appreciate no upfront fees and minimal documentation. Working with a cash flow specialist can boost business when dollars are tight and traditional loans aren’t an option—he/she will have multiple options for non-traditional financing and will find the right finance option based upon the individual needs of the retailer.

So just how much money is available through an MCA? Amounts range from $5-$150K, which can be used to add inventory, put toward marketing, or increase staffing. That’s great for your client and good for you, too, if you build a relationship with a loan specialist who will pay a finder’s fee on every referral funded.

As an additional incentive, you’ll see your client’s store prosper and increase orders. I’ll share one example of a successful furniture retailer I’ve personally seen tap into this non-traditional source of capital. Throughout the recession, he’s grown from one to three stores—and his main location has seen its sales double! This is a direct result of an MCA used wisely to increase inventory, marketing, and locations.

Isn’t this success story inspiring? If you want to increase your own sales, helping your clients grow theirs is the first step—and an MCA is a key way to achieve this goal. If you haven’t yet considered offering this option, there’s no time like the present to start!

 

Robert McBeath is a Certified Payment Professional and President of Cornerstone Business Solutions.  He has extensive experience offering merchant services and cash advances to home furnishing retailers. Visit www.CornerstoneBusinessSolutions.net or call him at 888.979.4731.

Eight Funding Sources for Growth Capital to Expand a Business

Wallet Loan AppA merchant cash advance can be an advantageous tool for putting a business on a fast track for growth.  While other growth capital options may be available for some businesses, are they viable or prudent?  What are the choices for funding for small and medium sized businesses?  Well, let’s take an example of an established business, with a minimum of a year of solid success.  Perhaps they have a good customer base and are meeting payroll just fine and earning a living.  Let’s say they are looking to take their business to the next level.  That usually means a capital infusion for growth.  Funds might be needed for more inventory, equipment, more advertising, another location, more employees, etc.  Getting the needed money to invest, a business owner could consider obtaining that needed capital from a number of sources, but many have disadvantages:

  1. From a bank loan.  An SBA loan or a line of credit for the amount needed is what I would recommend as the first source, as it will offer the lowest interest rate.  The reality is that in this business environment, business loans aren’t always easy to get approved for.  Also, it’s often a lengthy, cumbersome process that also shows up on their credit bureau reports and often ties up personal lines of credit as well. (more)
  2. Save and reinvest their profits themselves.  This is a conservative approach and avoids paying interest, but it is a long process for any growth.  Also, although a business may be doing well, saving to get to the next level of growth isn’t always possible.   In addition, although interest expense may be avoided, this savings is most likely outweighed by the lost profit margin on the growth afforded by instant outside funding.
  3. Borrowing from a friend or relative.  Doesn’t everyone know about the issues that can come from leaning on a close relationship for money?  Most people would agree this would be the LAST place to go for business money.
  4. Sell shares of the business to fund growth.  Watch Shark Tank lately?  In some cases it makes sense to bring in a partner.  In most cases it’s the most expensive and burdensome loan available.   Selling a part of the business is selling away the autonomy that a business owner has earned the hard way.
  5. Self-funding.   There are very few people that would have the means to make this a prudent option.  Self- funding would mostly likely mean raiding retirement accounts, cash advances on personal credit cards, a second mortgage or even dipping into an emergency fund.  All of these are poor personal financial decisions that could leave the owner and his family at financial risk.  Financial gurus Dave Ramsey, Suze Orman and even Kevin O’Leary would agree upon that.
  6. Crowdfunding seems to be the new buzz word for raising capital.  It may even be a viable option for the right start up that can catch the public’s imagination.  This is most likely a long shot for the average small and medium sized business.
  7. A traditional Merchant Cash Advance (MCA).  This is fast and easy access to short term capital.  It’s tied to the credit card processing receipts and a set portion (usually less than 20%) of the daily credit card deposits goes to pay off the advance.  Approval is mostly based upon credit card processing volume.  No collateral is required and the process is very quick with low requirements and documentation.  Cost of the funding is generally $3k-$4k for every $10K borrowed.
  8. A small business cash flow loan.  These loans are very similar to a Merchant Cash Advance.  One of the advantages over an MCA loan is that it isn’t tied to credit card processing, but the overall cash flow of the business.  Payback is done through small daily (M-F) equal amounts withdrawn from the business checking account.  The payback is less with only $2K-$3K additional owed for every $10k borrowed.  Approval standards are little more stringent than with an MCA.

Although these are a several different popular ways to obtain the capital necessary for the growth of a business, the pitfalls and obstacles for many of them leave a few stand out choices that just make good sense.  None of the other solutions will jumpstart a business as easily, quickly and effectively as a Merchant Cash Advance or a Cash Flow Loan.  These two programs both effectively can provide the short term loan for high profit expansion without jeopardizing the business or the business owner’s personal finances.  These popular loans have helped many small and medium sized businesses experience dramatic revenue growth that has far outweighed the higher payback amounts.

Can these alternate finance options energize your businesses with the capital to help you achieve your goals for faster growth?  If you are exploring options, call Cornerstone Business Solutions at 888-979-4731 today!

 

 

 

Business Lending: Five C’s of Credit

First Farmers State BankI’ve been a fan of Dr. Terry Noel, PH.D, and business professor for many years.  He was first referred to me for credit card processing for sales of his (then) new book, Empty Nest Egg.  After meeting him and reading his book, we would run into one another at the local coffee shop often enough that he must have wondered if I was stalking him.  He’s an incredibly gifted orator and writer with a commitment to assisting entrepreneurs.  He founded the Central Illinois Entrepreneurs Meetup Group in 2009 and for years I’ve intended to come and participate.  Finally last week I made it a priority to attend my first meeting, in no small part because of the guest speaker and the intriguing topic.

Steve Timmermann, Vice President of First Farmers State Bank is a well known and respected banker in the community and I was very interested in hearing him speak first hand from a local bankers perspective on the topic of the Five C’s of Credit pertaining to business lending.  I wasn’t disappointed as Steve was not only knowledgeable, but also a very engaging speaker.  I must admit that he had me personally in the palm of his hand when he so enthusiastically endorsed Cornerstone during the introductions!   My head swelled with pride, I furiously took notes as he spoke on business lending and I’m excited about passing on some of the finer points.

The first thing that Mr. Timmermann said was that the bank admires those business people that are willing to take a risk and they WANT to be a resource for their business capital needs.

Of course the banks do have criteria for business lending approval and it’s based upon The Five C’s of Credit: Character, Capacity, Capital, Collateral and Conditions.

Character – Since it’s unlikely that the banker personally knows you, they will rely on your credit report.  The bank might not run the business credit report, but will always utilize a personal credit report.  Other than perhaps doing something that makes headlines, this is what the character will be judged upon.  A bank will generally want to see a fico score at a bare minimum of 600, but it can vary depending on the situation.

Capacity – This is all about the ability to pay the loan back.  A few of the areas they will look at is the cash flow of the business as well as the debt to income ratio and other key financials, but they will take into consideration the overall big picture of the business.  This area carries the most weight in the evaluation.

Capital – The personal investment the business owner has invested in his business and his equity in the business is important in judging the risk of a business loan.

Collateral – Another consideration is whatever the business might put up as collateral, such as property.  The bank will weigh the collateral much differently than the owner, when it comes to real estate, inventory, receivables and equipment.  This is due to the fact that the bank can’t hold on to the collateral and is often forced to ‘dump’ it at a loss.

Conditions – This factor takes into account all of the variables of the business and market conditions.  It also encompasses the loan rate and amount.

All five of these items will factor into an evaluation where a bank will then score the business with a risk grade of 1-6.  One is the lowest risk and an ideal loan for a lending institution, while a six indicates a loss.

“Why is money tight?  That’s a myth.  Banks have more money to lend than ever.  The problem is finding good loans.  The good risk loans are the loans banks fight over.”  says Steve Timmermann.

So obviously the banks all want to lend to a risk grade of a 1, correct?  Well, there are exceptions.  I was surprised to learn that even if a potential borrower has great credit and is considered a low risk he could still be turned down if he doesn’t fit a particular lending institution’s profile.  In that case it might be wise to pursue the loan with a different lender.

In order to evaluate a business’s credit risk score using the 5 C’s they will ask for documentation beyond just pulling a credit bureau report.  Generally, a business can expect to be asked to provide a business plan, three years tax returns and a personal financial statement.  With this balance sheet they will be looking at an honest net worth and then judging the borrower’s character based upon this.  After this is all provided, approval and funding of the loan can be as quick as a couple days and as long as months.

Unfortunately, it was beyond the scope of the meeting and there were time constraints that prohibited us from discussing what happens when a traditional loan isn’t an option.  Not everyone qualifies for a bank loan or has the time and/or documentation required.  For existing businesses that can show a solid cash flow, Cornerstone has been very successful in quickly providing capital needs for growth.

For these non-traditional loans, they are generally considered riskier so the terms aren’t as accommodating as a typical bank/credit union loan.  The advantage is that the only consideration for approval is the second ‘C’, in Capacity.  This means a quick approval based upon limited documentation, showing only the ability to repay the loan.

I was impressed with Steve’s knowledge and I wouldn’t hesitate to recommend seeking him for a business loan or any other banking needs.  I think for a business that is looking for capital for starting up or growth, a locally owned bank or credit union is the best place to go to first.  You’ll have the relationship as well as extremely competitive terms.  In the event that such a lending institution is unable to qualify a borrower, then other options are available to existing businesses through the Cornerstone Capital Advance program.

The Lending Trend: Why Alternative Funding is Becoming Popular

MazeIt’s no secret that traditional small business loans have become more difficult to secure during recent years. This type of rejection means owners may have trouble financing equipment or inventory, or that they will struggle to make payroll or lease payments. Some of these businesses are actually doing quite well—but they lack typical bank requirements to attain loan approval.

 

According to the quarterly BDRC Finance Monitor, half of all small and medium-sized enterprises applying for loans for the first time are rejected compared with a fifth of those re-applying for finance. What exactly is it that causes business owners to struggle to attain traditional bank loans? A few key reasons are:

 

Bad credit – Banks review applicants’ personal credit scores, and if their score doesn’t make the cut (often around 680) chances are they’ll fail to get a loan.

 

Insufficient collateral – The amount of collateral offered may not be enough to back the amount of money applicants need to borrow.

 

Cash flow problems – Even with sufficient cash flow, very young businesses may not have enough of a track record for banks to feel comfortable granting loans.

 

Sounds dismal, doesn’t it? It’s not, really. Instead of crossing the pond, you may just need to go around it. Alternative funding methods like cash advances are becoming more popular among business owners, and for good reasons. Securing working capital this way often means forgoing credit checks, leaving collateral requirements by the wayside, and considering current cash flow sufficient as long as the incoming monies are steady.

 

Plenty of business owners have been successful with this new strategy to secure capital.

Benjamin Bohen of Waterfront Wines & Spirits in Brooklyn, New York says, “With the money we were able to invest in the business, we’re trending towards 25% growth this year.” And in the southern region of the country, Sharon Herd of Tropic Tan in Kennesaw, Georgia, adds, “Since closing my loan, I’ve already seen more than 100 new customers walk through my door.”

 

Because alternative lenders are equipped to meet the needs of small business owners, their programs are becoming increasingly popular with those struggling to secure traditional funding. And the trend is only growing—for businesses that need shorter-term loans and enough funding to meet specific needs, looking into a cash advance program is definitely worthwhile.

 

 

Visit www.CornerstoneCapitalAdvance.com, or call 309.820.0076 today to see how an extra $5k, $30k, or more could jumpstart your business this week!

 

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