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The turbulent economy has been particularly difficult for every business, but no one has felt the crunch more then the Main Street Business owner. With the banks still unwilling to lend, small business owners need to find other ways to get the cash they need to run their business, but what are those options? And at what cost?

Prior to the sub-prime meltdown it was relatively easy for the local business to access cash, they could just go to their local bank and get a line of credit on not much more than their signature. This quick injection of cash would allow them to purchase the inventory they needed, buy equipment and make payroll. But today those options simply do not exist anymore for most businesses, so now the local pizza parlor, dry cleaner and auto repair shop have to look elsewhere to get the financing they require to stay above water.

One option that has been getting a lot of press lately is the merchants cash advance, also known as credit card factoring. By using this method the merchant is advanced a percentage of their future credit sales now and pays back a fixed percentage (usually 15%-20%) of their daily sales usually through their credit card processing company. This can be a costly way of doing business doing business. With some companies charging a factor rate of upwards of 1.50, so for every $1 dollar that is advanced $1.50 is payed back. The providers are able to charge this because it is not considered a loan but rater an advance of future sales. That being said your credit score does not have much bearing on being approved. Expensive? Well it depends on what you compare it to. If the merchant is using the funds to buy a new car, or take a trip to Las Vegas there really is no benefit, in fact it will more than likely put them in a worse situation. However, if the merchant is using the funds for advertising or to expand the business, then there may be a substantial return on investment realized. The other benefit is it does not have a huge impact on cash flow because the funding source is only being paid a percentage when sales are made which can help particularly when business is slow.

Another alternative financing option that has been getting more popular is the Micro Loan. A micro loan is usually made by a non bank company and they generally charge up to or just under the current states usury laws. Unlike a merchants cash advance the payments and term are fixed and payment are made either daily or weekly by ACH (automated clearing house) or lock box. Credit is generally scrutinized a little more carefully than the merchant cash advance because it is an actual loan, but much easier to qualify for than a traditional bank loan.

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