“Now that you signed all your assets to the bank, ” I am happy to lend you your bus fare home.”

When you have a merchant who is trying to compare a bank loan to a cash advance us these sales tools to help the merchant understand they are comparing apples to oranges:
 
-A bank loan will allow an interest write off, where as an advance allows a loss write off, why? We are advancing the merchant based on their future receivables at a discount, therefore taking a portion of their future profits, the tax write off when comparing is night and day, the advance gives the merchant a substantial larger tax incentive to help minimize a tax burden at end of the year.
 
-The bank loan won’t allow you to take additional funding year over year, an advance will.
 
-A bank loan won’t allow you to pay off early with a prepayment discount, our advances will.
 
-A bank will want collateral majority of the time, an advance will not.
 
-When a merchant tries to compound the fees on the advance to a factor they always will say the interest rate is way too high, throw this back at them and see what they think. Convert the loan they think they are going to get into a factor and show them how much more expensive a bank loan is when compounding the interest over years.
 
For example:
 
A 250,000 advance over a 12-month term at a 1.30 factor will cost the merchant 75,000 in fees annually, not including if they payoff early and get the discount. The 75k in fees is tax deductible. The merchant will also qualify for another 250k obviously if they have made their payments on time and their revenue is still in line. Over the course of just say 5 years we will be able to give this merchant 1.25 million dollars and a 375,000 write off.
 
Now take a commercial bank loan, let’s say its 250,000 amortized over 10 years at 8%. The merchant will make 120 monthly payments at $3,033, for a total of 363,960. A TOTAL OF 113,960 In fees. Now divide that number 363,960 by the amount they took 250,000, comes to a factor or 1.45!!! The interest write off on this annually is minimal only 19,385 in the first year, compared to a 75k write off from a cash advance. The bank isn’t going to give them another 250k each year either!
 
Now tell me if the merchant could potentially grow their business more in just a 5-year span, with a bank loan or cash advance? 250k with minimal benefits, or 1.25mill with a long list of positives.
 
It’s all about educating the merchant as most don’t understand how this financing really works.
 
Hope this helps!

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