Steps in Considering Merchant Cash Advance Affiliate Companies
Start-up--the Merchant Cash Advance company has a business plan, a defined product, and basic structure, but little or no revenues are being generated. The product may still be just a prototype.
First Stage--the product is either ready for market, or is generating some revenues. The structure of the company is in place.
Second Stage--full scale production. The Merchant Cash Advance company's product has been selling and accepted by the marketplace. The company is ready for a major national introduction of the product or introduction of a second product.
Established--the company has been operating successfully for at least three years.
Turnaround-- the Merchant Cash Advance company has been operating for a number of years but is underperforming. A hard turnaround refers to a company that is not only underperforming, but has been in a cash deficit position with little hope of returning to a positive position without major restructuring.
What Is The Financial Condition Of The Merchant Cash Advance Company?
In certain situations the company's financial condition will suggest one kind of capital over the other. If the company needs all its cash to fund its growth, then a loan is not feasible, because the company could not afford interest and principal payments. If the company just needs a line of credit to fund a cyclical increase in orders, then it doesn't make sense to bring in an equity investor.
A lender looks at the asset base to secure a loan, and the cash that has been generated to pay the interest. They also look at what other debt or liabilities the company has and very often the debts and liabilities of the owner(s). The old adage that it's easiest to get a loan when you don't need one is close to the truth. A strong balance sheet, top heavy on cash, and light on the side of liabilities is easier to finance.
Investors look at how healthy the Merchant Cash Advance company is by reviewing trends in the operating statements and the balance sheet. A company that has demonstrated a positive trend in the past is looked upon favorably. However, the future outlook for the company's product and market is just as important to an investor as the past performance. A company with a somewhat shaky past in a currently booming industry is probably preferable to an equity investor than a great performance in the past in an industry that's on the downslide.
But what if your company is a start-up and doesn't have much, if any, history? Then other factors will be reviewed such as:
How much money the owners contributed to the Merchant Cash Advance company.
How strong is the management team.
How dedicated to success is the management team.
What other proprietary assets might be available such as patents, trademarks, goodwill, etc.
What barriers to entry to the marketplace are there?
While both debt and Merchant Cash Advance equity come at a price, the company must generate enough cash to repay the principal of the loan and the ongoing interest expense. Equity does not have to be repaid according to a fixed schedule. Equity investors are seeking long-term returns.
Posted on: August 28, 2011 12:17 AM