Merchant Cash Advance Lenders – Payday Loans for Small Business?
November 20, 2013
By Bob Coleman
Editor, Coleman Report
New York Times blogger and friend, Ami Kassar, continues to preach about the perils of high cost merchant cash advance loans.
Typically in the $25,000 range, these loans are paid back with daily debit hits to the small business owner’s checking account. With interest rates approaching 50%.
Ami clearly understands the “speed to market” attraction for the small business owner who is in a bind and needs the money ASAP, or doors will close.
The question is of course, are you delaying the inevitable with this type of financing?
Ami writes about a “Shark Tank” investor who plucks down $200,000 for a stake in one of the emerging companies.
“Recently, when I sat down to watch the ABC reality show “Shark Tank” with my children, I was surprised to see a merchant cash advance lender, Total Merchant Resources, pitching the Sharks. Typically, the companies that present on the show offer a unique service or product. Instead, Total Merchant Resources is a “me too” player in the highly commoditized and competitive alternative-lending industry.
“After some negotiation and discussion, Kevin O’Leary, a shark/investor known on the show as “Mr. Wonderful,” agreed to buy a 50 percent stake in the company for $200,000. As a loan broker, I know quite a bit about the cash-advance industry. While there are stories about how these loans have helped businesses grow despite the prices of the loans, I have also seen the negative impact they can have on small businesses. I was eager to understand what Mr. O’Leary was thinking, and I decided to contact him after the show aired. When I spoke with him, he told me that while the investment was not completed, everything was proceeding as planned.
“Total Merchant Resources, like hundreds of other companies in the cash-advance business, is essentially running an unregulated bank for business owners. Based in Piscataway, N.J., it lends money to small businesses based on their credit card receivables. Sometimes, these loans are the only source of financing available to struggling small businesses, but they generally come with very high annual percentage rates — as much as 50 percent or more — and with very short amortization periods. As a result, these loans can put small-business owners on a high-interest treadmill that can be tough to get off. They can even ruin companies.