Traditional sources of merchant capital have been decimated by the economic destruction of the past three years. Many lenders have either ceased operating, or have restricted their credit lines and lending standards to the point where the vast majority of applicants do not posses the credit quality to get approved.
Added to this fact is the reality that many retailers credit quality has significantly deteriorated as they grapple with less customer traffic and higher costs associated with carrying overhead and inventory. However, to see the Internet, one would think that a myriad of options are out there. The question is, for the average merchant, how cost effective and realistic are these options in terms of replacing the traditional sources of merchant capital they once had?
- Hard Money Loans - These types of loans may be a great option for those merchants or business people who are long on equity in the business, but short on good credit. If the business is not carrying a high debt load, these loans are available. However, the rates and fees may be significantly higher than a traditional commercial bank loan. Check with your local commercial mortgage broker.
- Mezzanine Financing - For small and medium public or private companies that have issued stock, this is akin to a second mortgage, or secondary loan secured by the stock of the company. This can be a useful option for those companies that qualify. Check with a commercial mortgage or specialty financing source
- Merchant Cash Advance- These high rate, high fee, unregulated "advances" have one main advantage in that they are quick and relatively low documentation. Fundings can ocurr in as little as 7 days. However, the merchant may also have to switch credit card processors, buy equipment and pay factor (interest) rates as high as 50% for the privilege. The loan is secured against future credit card receivables.
- Credit Card Receivable Financing- This alternative to the Cash Advance features quick fundings with interest rates that are typically 50% less on average with no upfront fees and no requirements to switch card processors or buy equipment. Tough credit situations can be worked with and working capital loan amounts up to 500K are available.
Retailers and businesses all over will need to really do their research before selecting the merchant capital source that is right for them. With many claims and counter-claims being made on the Internet, asking the right questions is key before making any decision that could have long term consequences to health of your business.
Neal Coxworth is an entrepreneur and a 17 year veteran of the consumer credit industry with experience in originating, underwriting and processing mortgage, student and consumer credit loans. He publishes an informational blog for consumers to provide insight and analysis to all major loan types as well other topics such as credit history, that most consumers will face. ARE YOU A RETAILER WHO NEEDS MERCHANT CAPITAL? CLICK BELOW TO FIND OUT MORE. Article Source: http://EzineArticles.com/?expert=Neal_Coxworth |  |
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