A merchant cash advance has its trials and tribulations. Working with many different business owners leads to some interesting situations. I wanted to share with you some examples from recent transactions and take you behind the scenes so you can get a peek at some situations you might run into too.
Digging Deep Holes
Several weeks ago I was working with a merchant regarding his account. I had discussed with him that he should not take any more cash advances for the next couple of weeks if he wanted a renewal. I thought he understood the situation and agreed to the plan. I called him yesterday to get funds rolling again only to find out that he hadn’t stuck to the plan at all. He’d waited about a week then needed money so he got a renewal.
I often get comments that I shouldn’t tell lenders that I’m going to stack merchants, but, in reality, it is the merchants that stack themselves. If they need financing for their business, the business owners are going to seek it out. There is nothing I could have done to avoid the situation above. I’d made a plan with the owner, I’d detailed exactly what he needed to do and he went his own way.
Another owner I was working with was getting their second round of funding. Before funding, the lender wanted to do a login with the merchant. The owner only had about $30 in his account. I called him up to let him know that wasn’t going to work. His solution was to put another $600 or so into the account, still not enough to get him funded. Obviously, he was really in need of capital.
I turned to a different lender who agreed to fund this owner, even with just the $600 in his account. We were almost at the finish line but he didn’t have the necessary funds to get funded. He really needed the money, and needed it yesterday!
The last owner I wanted to talk about was a sweetheart of a guy, who just didn’t get it. I was on the phone with him for quite a while trying to explain how the financing worked. He needed money to buy some materials for an upcoming job. The capital he was requesting would get him the materials for that particular job and several more as well.
He got stuck on the idea of having to pay back that interest when he finished the current job. Let’s say he needed to pay back $5,000 at the end of that job. He would still have had capital left to buy materials for a couple of other jobs so he could have bid and completed three more jobs that same month.
If he made $3,000 profit from the three other jobs that month, he’d have $9,000 in hand. He only saw the $2,000 loss from the first job ($5,000 he’d owe in interest minus his $3,000 profit). He couldn’t see how, in the long run, he’d actually profit because of those other jobs he could do that month. The capital would let him finish 4 jobs for a total of $12,000 profit, he’d pay back $5,000 in interest and pocket the remaining $7,000. It was a win-win situation but he never got past the idea of a small initial loss for long-term gains.