‘Stacking’ Prompts Regulation in Alternative Finance Industry
As future regulation looms for the alternative lending industry, we are changing the game of the now mainstream business cash advance. The current industry norm of purchasing future business proceeds and charging payback on money lent from 12% to 49% for extremely short payback terms (4-12 months) is widely known by business owners as a cash advance. But, business owners don’t know their business may qualify for a real business loan, because cash advance companies are interested in selling them expensive short term money, because of the high commissions. Simply put, selling less expensive money isn’t advantageous to a cash advance broker or financial sales office. Converse to this mantra, Cast Capital offers cash advance consolidation and real business loan products. Cast is taking a stance prior to regulation by providing free consultations to business owners who are stacked, the industry term used to designate more than one business cash advance. Cast offers merchants a way out of the cash advance cycle, by applying them to longer term financial products at rates predicted post regulation, around 75% cheaper than today.
We find business owners who could be approved for a long term real business loan, not an advance, but they are stacked with 4-5 expensive cash advances, states Bruce Leybel, President at Cast. These multiple stacked advances drain cash flow. Most business owners think cash advances are the only financing option they can tap into if they can’t secure a bank loan, but this is simply not the case. Cast Capital can approve business owners with a real business loan that is not a cash advance, this means access to cheaper money and more of it. The requirements are: 2 or more years in business, must make more than $250,000 per year, business can’t be a sole prop, and business must have declared a net profit on tax returns past year.
A recent study, performed by Cast Capital Corp. has found 79% of the polled merchants are currently paying off 2 or more cash advances and are actively looking for more money. They are in alternative funding holes, where they borrowed expensive money and then their cash flow is compromised with multiple high daily payments. This prompts them to borrow more expensive money to float the business, because their profit margins are solely going to pay off advances. These businesses often need more cash and lenders are willing to offer second and third positions with even more expensive money, since high commissions are always paid. This funding hole means devastation to the financial health of a small business. Future industry regulation will keep funders from predatory lending, but currently no federal and limited state regulations exist.