Why I support those dangerous working capital loans...

So many times we have to dance with the devil...especially if you are a small business owner.  Most of the time that devil is in the form of cash, or a lack of it.  If you're gonna dance, at least know the proper steps.

Today's rage in small business finance is a working capital loan, otherwise known as an MCA.  A lender takes a look at your last 3-6 months bank statements and borrows money to a small biz owner based on the averages.  Often times these loans are usurious at the very least and can be considered predatory.  They can also save a business!!  Now before you gasp and say "I thought this guy was smart and looked out for us small biz owners" let it be known that I have numerous case studies of clients who were guided through this labyrinth by yours truly and came out successful.  Here's how...

First, you have to be able to wrap your arms around temporarily paying exorbitant interest rates to borrow money.  Always remember there is a line on your income statement for interest expense.  Interest can be written down on your business tax returns, therefore mitigating some of the pain.  Next, you have to understand why you are in the spot you're in to even consider this type of financing.  Challenged industry, seasonal business and start up are all good reasons.  But the main reason small biz owners decide to take this financial vehicle for a spin  is their credit sucks!!

This day and age your credit doesn't have to suck.  That's right.  There are over 200 consumer protection laws that govern credit bureau reporting.  Even if you were culpable in creating your bad personal credit profile, there are ways out of it that ARE within the law!

With that being said, my strategy for using an MCA loan to your advantage is simple.  Get the loan.  If its a matter of survival, the interest rate really isn't relevant.  Don't get hung up on it.  Remember this is a deductible expense.  Now that's not to say you shouldn't shop around for the best rate.  In the world of MCA loans,  rates go from 15-75% "annually" depending on your situation and qualifying criteria. 

When you borrow, make sure you not only get enough to cover your business expenses, but also get enough to hire a competent attorney that specializes in credit restoration.  Stretch your payments out as long as you can to make them affordable and make sure there is no prepayment penalty.  Then go hire that attorney.  It's going to be expensive but remember the alternative.  The attorney I employ can pretty much clean a credit bureau report in 90 business days or less.  Just recently he took 67 derogatory items off the report(s) of a client in 55 business days!!  And therein lies the secret. 

That client now has the credit capability to go refinance that dangerous MCA loan in to a traditional business line of credit...which he did to the tune of $145,000 with NO interest for the first year of use.  Yeah, he really did!!  So your recipe for the secret sauce is:

1.  Obtain and MCA after shopping a bit for rates and no prepayment penalties.  I'd hire a competent,  integrity driven,  success fee based broker like myself to do it, but then I am one, so there is a bit of prejudice here.

2.  Hire an attorney to utilize the consumer protection laws and fix your credit.  Proper and legal interpretation of the laws virtually insure a credit profile that will enable you to obtain traditional financing.

3.  Once your credit has been repaired, go get a traditional loan which can come in many shapes.  If you use a broker like me, we'll figure out the best credit facility for you while you're credit is being fixed.  We'll prepare all the paperwork so its all ready to go the day your credit scores hit that magic number.  Then pay off the MCA early and you are now in the promised land!!

You've saved your business.  You've repaired your credit.  You've obtained traditional financing.  Now get back to work and make your business grow!!

And as always, if you want more information I am a phone call or e-mail away.  [email protected] or 303.513.8664

Happy borrowing.....