MCAs Suck?

“I don’t want a daily payment scam loan! Nothing with daily or weekly payments please! I don’t think you can help I already have high interest loans with daily payments,” Is what I hear on a daily basis. This simply shows the MCAs aka Merchant Cash Advances suck!! RIGHT?....

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John is a restaurant owner. He owns a modern Italian restaurant in Nashville. The restaurant has not only a nice dining room but a bar in case you want to step away from the table and get a few drinks. In the restaurant biz it is not secret that margins are NOT insanely steep. In the restaurant business you need money to make money, do you follow? SO when john finishes up for the month he makes a few bucks only AFTER he pays all his bills and employees/expenses. This means he doesn’t quite have 100k laying around after everything is said and done. Now, if you’re reading this you should remember I mentioned that “In the restaurant business you need money to make money.” Well, there is a big event in Nashville this weekend and john needs to buy a surplus of alcohol and food as there will be nonstop business throughout the weekend. John needs 100k and doesn’t have it. SO what does he do? How about apply for a term loan with his bank that will take 30 days to get approved?? NO that will take too long... How about he finds a new bank to give him a line of credit? NO same thing takes too long. Can he... NO the best option for John is to take a merchant cash advance, get that 100k same day and pay his vendors for the alcohol and food he will need. Now, why does john not care that that interest rate on this 100k is 25% It is simple, he doesn’t care because he knows if he buys 100k of inventory i.e. food and alcohol he can sell it and make 200k this weekend in sales. SOO he can borrow 100k, pay back 120k (early pay back negotiate the payoff) have 80k left over, then pay his staff/expenses for that weekend 30k and keep 50k profit. WHAT DID I SAY earlier? “In the restaurant business you need money to make money.” Let me spell it out... Without the 100k John makes less money. With the 100k he makes more money.

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How about Ryan in the construction business? He has an excavation company and needs equipment, more guys etc for a job he landed a contact on. Without having enough guys and equipment he can’t move dirt and start getting paid. Does he wait for an equipment loan that could take weeks? Does he wait for a term loan that will take months? NOOO he take the 250k MCA gets the job started aka starts pushing dirt so what he can bill for those big hourly checks and start making money. This is another perfect example of a business owner leveraging MCAs aka merchant cash advances to his advantage.

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Okay enough case studies I know they are not the most exciting to read. Let’s get down to brass tax here. You maybe not be a good fit for a MCA but that DOESN’T mean MCAs suck! MCAs have been painted as a “scam” or “predatory loan” but that really is not the case. They simply have not been sold correctly to business owners and for that they get a bad reputation. You may say “well dayten merchant cash advances have a 25-50% interest rate, how is that not predatory?” And that is a valid question. MCAs are not secured to anything. There is NO collateral and, in some cases, not personal guarantee. That means you could just take the money and say “oh hey sorry business didn’t work out, I can’t/won’t pay you have a nice day” and the lender is stuck taking a 200k loss. Ask yourself this, what type of risk is a “lender” taking by giving a company a couple hundred grand who they know little about “Dayten why doesn’t the company just do more due diligence and pick their borrowers better, so they can charge a lower interest rate?” Because that is what banks do… MCAs are not bank loans, it would defeat the purpose of a MCA. Which is a short term, high cost, very fast funding type of loan which only requires minimum documents & can be funded the same day. It is for people like John and Ryan (above case studies) not for a business owner looking for long term loans. Merchant cash advances are not bad, they are just for the right business in the right situation.

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