Retailers Seek Alternate Financing Options

By Seth Broman,

Despite news of a slowly recovering economy, small businesses are still being overwhelmingly turned down for bank loans. Tight credit restrictions and high loan eligibility requirements are leaving retailers with a lack of access to credit, stunting their ability to prosper and contribute to economic growth.

Among U.S. small business owners, 90% believe the availability of credit for small businesses is a problem, and 61% agree it’s harder to get a loan now than it was four years ago, according to a study released last month by the American Sustainable Business Council, Small Business Majority and Main Street Alliance. The most recent statistics support those concerns — total outstanding small-business loans fell 1.2% to $599.7 billion in the third quarter of 2011, from $606.9 billion in the second quarter, according to the Small Business Administration Office of Advocacy. Faced with a dismal outlook on bank lending, retailers are looking beyond traditional finance options and seeking out alternative lending solutions. Merchant cash advance services are an increasingly popular method of acquiring the fast capital needed for renovations, inventory, expansion and other needs.

Also known as business cash advances, the rapidly growing popularity of merchant cash advance services is driven by relatively low personal credit requirements and the simple and quick process of obtaining the cash advance. Prior to the economic downturn there were only about 10 firms in the United States providing merchant cash advance services, and today the industry has grown to more than 40 firms nationwide.

In 2011, the nation’s largest providers of advance services issued up to $8 million in business cash advances each month, which is up from $5 million in 2008, according to First Annapolis, a Linthium, Md., electronic-payments consulting firm. One of the largest firms in the country provided more than $400 million in small business funding during the seven years the firm has been in operation.

Merchant cash advance services supply retailers with working capital via a relatively fast and easy process, and are tailored specifically for businesses that accept credit cards. The firm purchases the future credit card revenues of the retailer at a discount. The amount of funding the retailer is eligible to receive is based on their average monthly credit and debit card processing volumes, and most businesses can typically qualify for one to two times their average monthly processing volume. The advance is paid back by remitting a small percentage of daily credit card processing receipts to the merchant cash advance company. An advance can be paid back between six and 12 months. A typical advance can be structured in three to five days, allowing the retailer access to the capital needed almost immediately.

Adding to retailers’ attraction to merchant cash advance services are the relatively simple stipulations for qualifying for this financing — a stark contrast from the stringent terms of big bank loans. To be approved, the retailer must be open for at least six months, accept credit cards, and process an average of at least $5,000 per month in credit card sales. Additionally, retailers are not required to pledge collateral or post personal guarantees. Since the advance is paid back with a fixed percentage of future credit card sales, there are no large monthly payments bearing down on the business owner which is especially helpful for seasonal businesses.

Merchant cash advance firms work with business owners across a wide spectrum of industries including retail, restaurant and the service sector to provide working capital to almost all businesses that are denied bank loans. In the post-credit crisis world, merchant cash advances have become invaluable to businesses.

An East Coast-based women’s clothing chain with 11 stores recently consulted a merchant cash advance company for help securing the capital they needed to purchase inventory for a new store they were planning to open in New Hampshire. Having only been in operation for just over a year, the owner was still focused on increasing profits of his clothing chain and did not have the extra revenue needed to purchase enough goods to open the new location. The owner was able to secure a $75,000 advance that enabled him to stock enough inventory to open the new store on time. 

Another retail chain, a franchised chain of 24 tuxedo stores in business for 19 years, typically experiences a lull in business during the winter when weddings and formal events slow down. The owner usually would use his personal capital to cover rent expenses during the off-season months, but this year he had taken out an SBA loan and would be unable to pull his personal capital out until the loan terms were fully satisfied. Needing a way to secure fast working capital, the owner went to a merchant cash company and obtained a $400,000 advance. With these funds, the owner was able to use the business’ future sales to cover rent expenses during the slow season rather than injecting his own capital.

As banks continue operating rigid lending policies, even retailers with solid credit ratings are being denied loans crucial to the success of their business. Seeking out alternative lending options like merchant cash advances is a viable option for retailers searching for working capital and help many retail chain operators, small business owners, and franchisors continue to operate and expand, despite the small business credit crunch. 

Seth Broman is VP of business development for New York City-based Merchant Cash and Capital ( a privately held company. MCC provides working capital to restaurant, retail and service businesses by purchasing future revenues from merchants at a discount. Contact him at

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