The current chaos in financial markets has changed how merchant cash advances should be evaluated. The use of credit card factoring and credit card processing to obtain working capital financing has recently become a more viable commercial funding strategy. Although this approach for securing business cash advances has been available, businesses historically seemed to prefer using other financing sources to get needed funds. While there are still other small business cash options which should be considered, the practical reality is that the choices available have changed dramatically for most business owners.



Recent changes in most commercial finance programs have resulted in many businesses scrambling to locate new sources for working capital and commercial loans. What has changed to make business cash advances a more feasible option for small business financing? Here are four of the primary reasons for a changing environment where business loans are involved.

First, the availability of unsecured lines of credit has all but disappeared for most small businesses. This was a favored method of business financing for years and will be sorely missed by many.

Second, in the recent past many business owners have probably used home equity credit lines to obtain needed cash quickly and simply. Most banks have reduced or eliminated these home equity loans in response to a nationwide residential funding crisis during the past year or so.

Third, banks are increasingly insisting on more collateral for their working capital loans and other commercial loans. For many business owners, providing additional collateral is not a feasible alternative.

Fourth, a growing number of local and regional banks are exiting the commercial lending business. In some cases, the business lending focus has shifted to larger businesses with long-term ties to a bank. This has produced an immediate and negative impact on relatively new and small businesses which especially need more working capital help in a challenging economic environment.

The four significant business financing trends noted above have resulted in a practical need for most business owners to now look much more actively at business cash advance programs. With such financing, businesses can obtain working capital cash based upon their credit card processing activity during the past six to twelve months.

Are there problems or pitfalls with this approach to obtaining small business cash? There are definitely problems to avoid with this specialized version of working capital financing. In fact I have prepared a number of special reports on this specific issue.

One major pitfall of business cash advances is the presence of a growing number of seemingly predatory lenders. These lending groups typically have one or more distinguishing negative characteristics.

One of these negative attributes is the apparent urgency by the lender to change the credit card processor used by a business. While there will always be legitimate reasons to consider changing the credit card processing arrangement, it should never be the first priority in a business cash advance program. If there is a rush to do so by the lender, it is probably due to a misguided attempt to obtain processing fees even if they are unable to provide a working capital advance.

Another negative characteristic is misrepresentation about how quickly business cash advances will be provided. While legitimate funding can typically be obtained in a month or less, business owners should be skeptical of agents who suggest that financing is routinely available in a week or less.

How can these seemingly predatory commercial lenders be avoided? Perhaps the most pragmatic solution for avoiding entanglements with one of these questionable lending sources is to have a lengthy conversation with a prospective lender prior to taking any action. Certainly it is especially unwise for a business owner to submit an online working capital cash application without having such a detailed discussion.