As a small businessperson I understand what a challenge it can be to get clients who owe you money to pay their invoices. It can be excruciating.
I also understand the need sometimes for emergency cash for my small business to keep it running when clients take their time with payment. There have been times when I’ve been in a real, unexpected jam and not able to work with a bank for a traditional loan that would take weeks to get done.
Today there are a number of innovative ways for small businesses to get capital when in need, yet some who provide rapid capital options are under attack. Shocker! The Banking industry lobby doesn’t mess around.
Now. In every business there are bound to be bad actors. Especially when you talk about newer business models where a bit of a Wild West mentality can arise.
Just think back a few years to Enron. It told investors it was in the energy trading and supply business. Great. Everyone needs energy, every day. Of course, it turned out that Enron was in the “cheating investors” business rather than the energy business.
Still, when Enron collapsed, and that happened almost overnight, the need for energy never dimmed. And the supply didn’t fail either. Many companies that were really in the energy trading and supply business stepped up in real time and delivered the power the country needed, when it needed it. The market self-corrected, and Enron’s corrupt leaders faced punishment. It wasn’t the business model that was bad. It was just one company.
(Aside: There was even a time when the government tried to shut down Microsoft for crying out loud).
Keep that in mind if you hear bad things about the “Merchant Cash Advance” (MCA) business. There will be an occasional bad actor, but most companies in the field are responsible, and providing a crucial service to people like me.
The good guys have banded together to form the Commercial Finance Coalition, to help explain the benefits of MCAs and ensure that providers operate in a safe and ethical fashion. The group is promoting best practices for this growing industry. As it should.
An MCA is a specific agreement between a small-business owner and a company that will deliver a quick infusion of cash to keep the business running.
Most MCA agreements involve relatively small amounts of money, often just $5,000 to $25,000. It’s not a loan, though, because the receiving company often agrees to give the provider a share of future income to pay it back.
MCAs are becoming necessary for many business owners because it’s become more difficult to get a loan. Federal SBA loans are available to some businesses, but there’s a specific list of requirements a borrower needs to meet, and getting the loan can take a long time – far too long if you need money quickly. As for traditional bank loans, they’re becoming harder to obtain. Banks are often “unwilling or unable” to loan money to small businesses. Some people have gone so far as to become their own bank, lending their personal money to the business. But that’s just not an option for most businesspeople.
Why would an owner need cash quickly? Well, it’s usually to respond to an emergency. For example, if a flower shop’s delivery van breaks down right before Valentine’s Day, the business might go belly up. An MCA can provide the cash necessary to keep the van, and the flowers, and the business, moving.
Keep in mind that the business owners who are seeking money are experienced hands who know how to make a deal. Often, they’ve handled negotiations with workers, suppliers and other lenders. They understand the terms of the deal they’re entering, but they decide to make the deal. And if they screw it up, perhaps they should seek options other than self-employment.
That is an example of a market working as it should. At this stage of my life, many, many of my friends have their own businesses. None of us just fell of the turnip truck. We work pretty much 24/7/365. Don’t nanny us when it comes to emergency financing options. POLICE the providers, of course, but don’t choke them in the crib.
Christian Josi is a veteran of international center-right / libertarian politics, a leading media strategist, music and film producer, and a frequent columnist for a variety of publications. He is the Founder and Managing Director of C. Josi & Company, a global communications resource firm based in Virginia Beach and Washington