Cash Advance: New Way to Finance Capital Improvements
Editor's Note: The following article was provided by Gerry DiMarco, Anthony DiMarco and Pierce Redmond of Security Mortgage Group (www.securitymortgagegroup.net), who have been helping RV park owners finance and refinance their parks since 1992. Over the past five years they have financed over $370 million in RV park mortgage loans. Recently, they have partnered with MerchantPro Express LLC (www.merchantproexpress.com), a credit card processing company and cash advance provider.
The merchant cash advance industry has made its way into the RV park industry over the past several years. Cash advance allows RV park owners to get money for capital improvements now or during the off-season, when things are slower, in anticipation of the spring and summer high-traffic season.
What is Cash Advance?
Cash Advance is not a loan – it is a purchase and sales of a future credit card processing account at a discount. The cash advance takes a look at your seasonal credit card processing history and then determines what percentage of each credit card transaction it can take to get repaid its pre-determined payback amount while keeping your company viable. Advances can be as low as $20,000 and range up to $1 million, depending on your credit card collection volume in your peak season. In many ways, the cash advance company’s interests and yours are aligned. If the burdens of repayment put too much strain on your RV park, then the cash advance might never realize a return on their investment.
Advantages of Cash Advance
- Allows you to get cash for capital improvements when a bank refuses to lend you the money.
- There is no fixed repayment schedule. The cash advance company gets paid a percentage of your credit card processing transactions.
- No standard mortgage closing costs or prepayment penalties.
Disadvantages of Cash Advance
- The money can be expensive, with most cash advance companies charging rates of return between 25% – 35% over a 6-12 month period.
- Underwriting can be demanding, so expect to be able to deliver historical company financials, credit card processing statements and credit reports.
- You will most likely need to switch credit card processing companies (though this might help you realize credit card processing savings).
How to Select a Cash Advance Provider
Cash advance companies are everywhere, but you should find a provider that is familiar with RV parks – how they operate and how their finances work. Such providers will know how to structure repayment to maximize cash they can provide and put the least strain on your business. They understand the seasonal nature of your business, as well as the ongoing capital improvement needs of RV park owners.