Merchant Cash Advance Case Studies

Merchant Cash Advance for a New Business in A Pinch

Arturo Calderon was in the process of having a new Yucatan Taco Stand restaurant built in Woodlands, Texas with $500,000 in funding from partners and $700,000 in funding from investments. The construction ran $80,000 over budget forcing Mr. Calderon to dip into the funds that had been set aside for his September 2011 opening. Although business had been good from day one, being forced to operate without the $80,000 that had been anticipated for opening costs was difficult. One month after opening Mr. Calderon applied for a cash advance from a lender that routinely worked with businesses that had a high volume of credit and debit card transactions for a percentage of their future sales. Mr. Calderon was approved for $80,000 within 48 hours of applying but his rates were at a 20% markup, a great deal higher than a bank loan would have been.

Within a few weeks of opening Mr. Calderon had a bank that was going to lend him the $80,000 to cover the deficit he experienced with his start up costs, but it was going to take between 4 to 5 weeks for him to actually get the money and he was unable to wait due to the possibility of accumulating late fees. The merchant cash advance lender told Mr. Calderon that he could have the finds the next day. He knew that it was expensive, but it made more sense to him than waiting. To be approved all he had to do was present them with his sales records and allow them to do a credit check. The business was booming and it had approximately $40,000 a week in sales the first month, so the projection of future sales was also good.

The repayment terms were simple: Mr. Calderon received the $80,000 he needed by agreeing to repay a total of $100,000 and allowing the lender to take 12% of his Master Card, Visa, and Discover Card sales every day until it was paid in full. The remaining 88% of his sales remained with him. He understood that the price was high, but he also understood that he wouldn’t feel the weight of the daily payment as heavy as he would have a large monthly payment.

Although, this made sense for Mr. Calderon he advises that any business owner considering a merchant cash advance takes the following precautions:

  • Investigate potential providers through online searches, the Better Business Bureau, and talking to other business owners who are currently and/or previously utilizing their services.
  • Monitor credit and debit card sales for a minimum of six months prior to applying for the merchant cash advance to determine if the business has enough revenue to repay the debt without putting additional financial strains on the business’s finances.
  • Avoid providers that charge application and funding fees.

Merchant Cash Advance For An Emergency Situation

A flower shop owner by the name of Rebecca sought out a merchant cash advance when the flower shops cooler and delivery truck broke down on the same only a few days before the Mother’s Day holiday and the business didn’t have the available funds to make the emergency repairs. The combination of the repair costs and the loss of revenue due to lost business would have been a financial disaster for the flower shop.

Rebecca attempted the traditional route first by applying for loans with the local banks and was denied. This placed her into a huge bind because her business required both the truck and cooler in order to function and she didn’t have the luxury of waiting a month for a loan approval that she may or may not have received. She was in immediate need of working capital and began to diligently search for other options. Rebecca reluctantly contacted a number of merchant cash advance lenders because she had a lot of reservations: she thought that it sounded too good to be true and was skeptical that money could be available so quickly without the lender having some type of hidden agenda. Once she realized that the lender was honest and straightforward she signed the agreement, she received the money that she needed to purchase the new cooler and repair the delivery truck, and was back in business in time for the Mother’s Day Holiday.

Merchant Cash Advances to Restock Inventory

A children’s apparel store owner who had been in business for nearly 20 years found herself in a bind when during one winter she faced the biggest product demand that she had faced in years. Knowing that she needed to keep up with supply and demand in order to accommodate her customers she was in desperate need to replenish her inventory, but because of a fluctuation in her revenue during earlier months she was faced with the reality that she didn’t have the revenue in order to restock her inventory as quickly as she needed to. She quickly contacted the merchant cash advance provider that she had utilized 2 years earlier when she needed capital to open a second store, completed a new application, and provided them with her most recent bank statements. The merchant cash advance provider was able to approve the owner quickly and supply her with a $25,000 merchant cash advance, enabling her to restock her inventory in a timely manner before she lost business.