Legal Information Notice: This checklist provides general educational information only. It is not legal advice, does not create an attorney-client relationship, and may not apply to your jurisdiction or circumstances. Laws and deadlines vary. Do not rely on this checklist for a specific legal decision or deadline; consult a qualified attorney licensed in the relevant jurisdiction.
- A merchant cash advance is not economically identical to a conventional loan.
- The headline “factor rate” can obscure the true cost.
- Frequent repayment can strain cash flow.
- Daily or weekly payments can become painful during slow periods.
- A high approval rate does not mean affordability.
- The financing can be extremely expensive.
- Stacking multiple advances can create a debt spiral.
- A second advance can worsen the first one’s cash-flow problem.
- Personal guarantees may create personal exposure.
- Confession-of-judgment provisions or similar contractual provisions may deserve specialist review where applicable.
- ACH withdrawals can create operational problems when cash flow falls.
- Revenue-based repayment does not eliminate economic risk.
- A business can generate revenue while still losing money.
- Financing inventory does not guarantee inventory will sell.
- Financing marketing does not guarantee customer acquisition.
- The promised use of funds should be tested against actual return.
- Broker fees may add to cost.
- Renewal offers can encourage additional borrowing.
- “Fast funding” can discourage careful comparison.
- The repayment structure matters as much as the amount received.
- A lower payment can simply mean a longer repayment period.
- The true dollar cost should be calculated.
- Legal documents may contain provisions that are easy to overlook.
- Multiple simultaneous advances can consume future revenue before it arrives.
- If the business needs another advance to make the current advance’s payments, the financing strategy is already in trouble.
B. PREMIUM BUYER CHECKLIST
TRUE COST
☐ Amount received
☐ Total repayment
☐ Factor rate
☐ Broker fees
☐ Origination fees
☐ Other fees
☐ Expected repayment period
Calculate:
Total Repayment − Net Cash Received = Financing Cost
Then determine the approximate effective economic cost over the expected repayment period.
REPAYMENT
☐ Daily amount
☐ Weekly amount
☐ Percentage-of-revenue mechanism
☐ ACH requirements
☐ Estimated payoff date
☐ Early payoff terms
STACKING
☐ Existing advances
☐ Existing credit lines
☐ Credit cards
☐ Equipment debt
☐ Other short-term obligations
CONTRACT
☐ Personal guarantee
☐ Default provisions
☐ Collateral
☐ Arbitration
☐ Legal remedies
☐ Payment authorization
☐ Broker compensation
CASH-FLOW STRESS TEST
☐ Revenue −20%
☐ Revenue −40%
☐ One slow month
☐ Two slow months
☐ Major customer loss
FINAL RULE
Never evaluate the advance based solely on how quickly you receive the money.
FINAL QUESTION
How much of my future revenue am I giving away to receive today’s cash?
Leave a Reply