Dear Karen: I can't get credit, but I'm getting letters from companies offering merchant cash advances. How do I evaluate them?
Answer: Reject any offers that include an "application" fee. Fraudulent outfits often collect upfront fees and then disappear, said Marc Glazer, president of Business Cash Advance.com in Fort Lauderdale, Fla. Legitimate cash advance companies do not charge upfront fees.
Do not do business with firms that impose balloon repayment dates. "There should never be a set due date when the remaining balance becomes immediately due," Glazer said.
Look for companies that charge a fixed percentage of your sales each month, regardless of your sales volume. Those that demand higher repayment percentages in slow months could put you out of business quickly, he said.
Be wary of firms that require you to do business with a specific credit card processor. "The most reputable merchant cash providers do not require businesses to switch to their exclusive credit card processor partner in order to qualify for a cash advance," he said.
Choose a strong franchise brand
Dear Karen: I'm interested in opening a franchise. Is this a terrible time to do it?
Answer: It's a tough time to sell luxury services or high-end retail. But it's not a bad time for all franchises. If you can secure funding, you can find excellent buying opportunities.
"Instead of looking at the economy, research industries and local markets to determine whether or not a franchise will thrive," said Greg Helwig, chief development officer of Kiddie Academy, a child-care franchise based in Abingdon, Md.
Find out all you can about the industry and then research which franchisers are most successful in your area.
"Aligning yourself with a credible brand means you'll have smaller marketing expenses and an established consumer base. Look for companies that have a proven business model but also provide plenty of growth opportunities," Helwig said.
Survival tips for small businesses
Dear Karen: Big banks and homeowners are now getting bailed out while small businesses are ignored. What can we do to keep our heads above water?
Answer: Small businesses must evolve and adapt to survive this economy, said Daniel Meyerov, co-founder of OnlyBusiness.com. "Small business can find opportunities that larger, less-nimble entities may have difficulty embracing," he said.
For instance, if your business sells new products, start offering used products and repair services to customers who can't replace or upgrade. You can also provide additional value to potential customers by mitigating their risk of doing business with you, he said.
"Offer bundled packages with guarantees and maintenance contracts and spread out customer payments over longer terms," he said.
You should also ensure that your business plan takes into account the dynamic nature of the economic environment in which you operate.
"Make sure that you know beforehand when your business is at risk," Meyerov said, "and have a plan ready to implement to avert those risks."
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