Rejected by banks, cash-strapped retailers are turning to credit card factoring companies for the working capital financing they so desperately need for the upcoming holidays.
September 30, 2010 – Fredericksburg, VA — This past week brought the much-heralded pronouncement of the statistical end of the recession, but the real recession lingers on, weighing heavily on America’s beleaguered retailers who are fast running out of business financing options.
Credit card factoring – also called the merchant and business cash advance – gives retailers who accept credit cards a business capital safety net, allowing them to pledge future receipts in exchange for an immediate lump sum advance.
According to business financing expert, Mike Lieber, persistent tight credit conditions in the small business arena combined with the urgency of ordering inventory for the upcoming holidays have many retailers on the razor’s edge.
“Many retail merchants have exhausted their available funding trying to survive until the holidays, and now they are in a bind because they can’t adequately prepare for their most profitable, make or break season,” he says.
In their quest to sustain their operations, struggling business owners have drained savings and burned through available credit, in many cases inflicting severe damage to their personal credit ratings the process. Ironically, bank vaults are stuffed with cash, but the businesses that need financing the most are being turned away because they are no longer deemed creditworthy. And the President’s $30 billion Small Business Jobs and Credit Act of 2010 comes too late to help retailers that must ramp up now for the holiday season.
Lieber’s company, AEGIS Financial Solutions, Inc., specializes in helping companies work through cash flow challenges with a variety of financial tools and techniques. According to his company web site, www.smart-business-financing.com, credit card factoring is one of the best solutions available for a direct-to-consumer retailer who has run out of traditional business financing options.
Credit card factoring is not structured as a loan but, like its older cousin, account receivable factoring, is an advance against future payments. But instead of an advance against invoices, credit card factoring providers offer businesses a lump sum payment in exchange for a share of future credit card sales. The business cash advance is made at a discount to an anticipated face value of credit card receipts, but rather than collecting on invoices, the credit card factoring provider will be entitled to a small share of its client’s daily sales that are paid with consumer credit cards.
For example, a business cash advance provider might offer to deposit $8,000 into a restaurant’s bank account today in exchange for $10,000 in future sales. The provider will directly collect a set percentage out of its daily credit card sales until it recovers the $8,000 advance and its $2,000 premium. Collection is spread out over a pre-determined time frame so that it won’t negatively impact the businesses — an important benefit because the amount paid will vary with the restaurant’s cash flow. During slower months, it pays less, in better months, more.
“Compared to rigid repayment requirements of bank loans and business lines of credit, credit card factoring is very flexible,” says Lieber. “You have no due date, no fixed term or payment, and the amount of credit available grows automatically with the business.”
The catch? On an annualized basis, a business cash advance is quite expensive when compared to the interest rate on a bank loan or business line of credit. Lieber’s Smart-Business-Financing.Com cautions business owners to fully consider the true costs when evaluating the appropriateness of credit card factoring for their companies.
About AEGIS Financial Solutions, Inc.: Founded in 1998, AEGIS Financial Solutions, Inc. has helped clients leverage the fast, flexible and powerful resources of the cash flow industry and asset-based finance techniques to solve financial problems. Getting money for people when they need it most is what we do best.
Mike Lieber, President
AEGIS Financial Solutions, Inc.
88 E. River Bend Road
Fredericksburg, VA 22407
PH: (540) 548-2270