Buy.com Averts a Shutdown

Internet retailer Buy.com Inc., averting a crisis that could have forced it to shut down, said late Thursday that it has a new deal with a company that had threatened to stop handling Buy.com’s credit card transactions.

The struggling Aliso Viejo company said founder Scott Blum, who is in the process of buying the company and taking it private, provided financial support that has enabled Buy.com to renew the processing agreement for another year.

“He provided the necessary financial support, or guarantee,” Buy.com President Robert Price said. He said the guarantee did not involve cash, but would not provide further details.

In a regulatory filing Monday, Buy.com had said its online credit card processor was planning to stop servicing orders. It said that could have shut down Buy.com as early as next week because credit card sales account for 90% of its business.

Price, who did not return calls earlier in the week, declined to say Thursday precisely why the credit card processor had threatened to pull out. Nor would he identify the processor.

“In an uncertain economy, sometimes credit issues tighten up,” he said.

Credit card processors have become increasingly wary of online retailers, which have been plagued by credit card fraud and a high rate of charge-backs--refunds to credit card holders who are unhappy with products purchased sight unseen.

Buy.com said in its filing with the Securities and Exchange Commission that the processor wanted to end the relationship in July but held off when Buy.com agreed to increase the processing fee by 1% and let the company keep 5% of daily receipts.

The Internet retailer has been struggling with plunging sales and dwindling cash reserves, and analysts have said they do not think the company can survive. Hoping to avoid the fate of so many other online ventures, Buy.com has been overhauling its business, laying off workers and shutting down offices.

Although it managed to trim its second-quarter loss to $5.7 million from $33.6 million a year earlier, Buy.com had less than $14.5 million in cash on hand on June 30.

Price said Blum’s plan to take the company private should help resolve Buy.com’s dwindling cash reserves. As part of the deal, Blum would provide Buy.com temporary financing of up to $9 million through his SB Acquisition Inc.

Buy.com’s stock closed at 10 cents, down 4 cents, in over-the-counter trading. The agreement was announced after regular U.S. trading hours.