In A Pinch For Cash? A Merchant Cash Advance Worked For This Business

With $700,000 invested from his partners and a healthy investment of $500,000 of his own, Brian Benson figured he had the financing  of his restaurant knocked.  But as construction dragged on, and costs for site plan revisions mounted, his 3,000 sqft restaurant, The Yucaton Taco Shack, ran $80,000 over the original budget.

Budget overruns sucked away from the operating cash Brian had set aside.  From the September 2011 open, business was brisk.  But the loss of that operating cash made things tight.  So just one month after opening, Brian decided to apply for a merchant cash advance through Flashadvance.com.  A merchant cash advance is not a lone.  It is a financing tool in which future sales are purchased at a discount in exchange for cash up front.  The cash advance is then repaid by taking a small percentage of credit card sales each day.


Though such financing is more expensive than a traditional bank loan, they can be obtained fast, often in less than 72 hours.  By comparison a business loan can take weeks to arrange and typically ties up collateral, or requires a personal guarantee by the owner.  Not so with a merchant cash advance.  There is no fixed payment terms.  Since payments are taken as a percentage of sales, the business won't suffer fixed monthly payments when business is slow.  When business is good, the advance is paid down quicker.

Why did Brian choose this route?
Brian said they needed that money to operate. He didn't want to drain the business's bank account at startup and he didn't want to give up more equity to his investors.  Nor did he want to put in more money himself.  The Flashadvance.com advance was expensive, but it made sense for Brian situation.


What did the process involve?  Brian showed them weekly retail receipts of $35,000 for their first month.  Flashadvance checked Brian's credit and he provided the company operating agreement.  Brian received $80,000 in cash and he paid back $100,000 through a 12% discount on Visa, Discover, and MasterCard sales every day.  Although he admits it is "expensive moneyy" he said he didn't feel the pain because its a small amount of daily sales rather than a large monthly fixed payment.

What advice does Brian have for those considering a merchant cash advance?   "Be sure of your sales numbers and costs before entering into a deal like this.  It can kill you very easily if you miscalculate your operating expenses.  It works great if you have relatively strong sales and can pay the advance back in 6-8 months.