Hey, it's Jonathan Gabel here! Here's an interesting topic of conversation in the credit card world. Money, right? Pretty, pretty common, right? We process credit cards and we'll give you money. Works out pretty good. Kind of the foundation of most businesses these days is cashflow.

But what happens when you run out of money or your business is slow or you're super seasonal like we are down in my immediate area which is southwest Florida where we go gangbusters from January to March or April and then Easter hits and then everyone just takes off. It's like they got on a plane and left. It's crazy.

It's basically a "no collateral" type of loan, but it's not a loan. They are not allowed to call it a loan for legal reasons. But technically they're giving you money. So it's kind of like a loan, but not a loan for legal purposes. So what happens is you're basically purchasing future receivables (is what the technical term is).

If I process $100,000 a month in my restaurant every month, or on average, I can get from these merchant cash advance programs (or companies) generally about 110% of that deposited right into my bank account, which sounds pretty good.

If you need to expand, you want to open up another location, or need some cash down, these are all things that you could do with this money because it's your money; you can do whatever you want with it. You gotta be smart about it because it ain't cheap. It is not cheap.

Generally what happens is it's a cash advance. So again, you're purchasing a future receivable. If I were to give you $100,000 today of your future income, would you pay X for it? And that's the logic, which sounds kind of funky and a lot of these guys that are selling this thing a ton, that's the way they sell. It sounds confusing. It is confusing.

What it boils down to is you're going to pay anywhere from a factor of 1.2 to 1.6. So if you're going to get $100,000 you technically could pay $150,000 back! And the time-frame is generally about six months. So if we do the math on that and we could relate it to a loan and interest....it's astronomical! 

This tool used properly can be beneficial. But you want to be super careful if you're going down this route. There are other options out there that are probably more conventional (banks, stuff like that). Since this industry got really popular and people started realizing how there's a fine line in the sand, if it's going to just send you down off the cliff, or it's going to help you out. You really have to use it smartly.

One of the products that came out recently is American Express does a cash advance or a merchant funding program where generally it's anywhere from about 6% to 10% actual interest. 

If you take a hundred grand out over the course of the year, you're going to pay about eight percent on that. It's an awesome product. We love it! For businesses that are looking for funds that we're able to provide them...our first attempt is to go that route. If they can't get approved on that aspect because of the time of business (which has to be two years) we have other options as well, but a little more costly.

We try to give it to you in such a way that we're giving you the information you need to do it wisely...do it smartly...make sure you're not setting yourself up for failure down the road.

Cash advance / merchant funding, it's a tricky slope. We're here to help if you need some money and I'll try to give you some best practice...give you a checklist. Say, "what am I using this money for? Is it a freezer or is it a midlife crisis Porsche?"

If it's a midlife crisis, Porsche, I don't recommend it. But it's up to you. I'm not going to stop you, but I'm going to say don't buy a Porsche. Go buy another location. Go buy a refrigerator. I don't know. Go do whatever you need to do for your restaurant, or your business (does not have to be just a restaurant). Could be any business at all if you're accepting credit cards.

Let us know. Love to help you out. Get you some money. Fix some stuff. Build some stuff. Grow some stuff. And that's it. See ya!

Contact Priority Business Solutions today.