By now nearly everyone who owns a small business has been contacted by a sales rep to get almost instant money to you. This always sounds wonderful at first glance. After all, outside of winning, inheriting, or stealing, you can only get money in addition to your organic revenues by borrowing in some form. So what are the forms of borrowing? Friends and relatives. We leave this one to you. It usually ends up being a very effective way to have wealthy, incredulous friends take you off their holiday card list. Your "friendly" banker. Ha. If you've ever approached a banker for a business loan, you've been told that you must have "abundant capital" - that's banker-speak for "enough liquid assets that we can dissolve if we feel your loan is in danger of defaulting". Banks have the money - after all, we just bailed them out from their most recent folly. But they make their income from DEPOSITS. Most of them don't even want to make loans. Equipment, receivables or credit-card ("merchant cash advance") factoring. If you have valuable equipment or great receivables, or if you process typically more than $10,000 per month from credit-card payments, you can contact a "factor" who will advance (not lend) you money by securing your equipment or your receivables. The advantage here is that you can usually get your advance within a few days. There are two disadvantages: The amount you'll be paying back in excess of the amount you received is NOT tax-deductible like interest on a loan,The "factoring ratio" is usually 1.3 to 1.5 - or more. That means that if the factor advances you $10,000, you will pay back $13,000 to $15,000 over a typical 6-month term. You are actually paying back the equivalent of a loan with 30% to 50% interest within 6 months. That's equivalent to an annualized percentage rate (APR) of 60% to 100%. And that over-pay is not deductible. If you really need money fast, and IF YOU KNOW YOU CAN PAY IT BACK FULLY WITHOUT GOING OUT OF BUSINESS, this can be a good solution.Locate private lenders. There are several companies that we represent who can loan a business money for far less than any factor can charge. Yes, the interest rate is higher than the one quoted by your local bank - the one you do not have access to. The advantages are obvious: Your interest rate is far lower than a factor,This interest is deductible,The lender typically reports to the credit bureaus (this is good news, not bad). This will help you establish good business credit, which helps you remove your business liability from your personal liability.We represent groups of factors, several merchant banks, and several groups of private lenders, so we can give you a truly objective idea of how much money you can get, when you can get it, and how much you are going to pay for it.tomm@amp-up.com
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