Business Owners Need Every Break They Can Get
The end of the year is when many larger companies take out merchant cash advances, not because they need them or are in a jam, but because they learned a crucial element with this unique product. That element is a bit of knowledge that brokers in the industry may not know about, but Metromedia Funding Solutions researchers discovered that because the merchant cash advance is NOT a loan but, a PURCHASE agreement of future receivables from a business, owner Rick Moghadam started looking into the idea that if the funder is buying the receivables at a factor rate, that the factor should be tax-deductible. After hours of research, and discussions with several tax professionals, it was confirmed. When you take a merchant cash advance the factor rate is deductable because you sold your receivables at a discount. For instance, if you took $10,000.00 and paid back $14,000.00 the $4,000.00 may be deductible. According to Michelle Johnson with H&R block, certain language must be in place. There have been conflicting opinions between lawyers and tax professionals but the merchant cash advance is a purchase agreement of future receivables. The future receivables are property of a business when you sell the property to a buyer, or funder in this case, she said it would warrant the use of IRS form 8594. As you are reading this, please remember, I am not a lawyer, tax professional, or financial advisor, but it seems to me that an opportunity has presented itself. Here is the LINK to form 8594
Some made good money in 2021, and tax season is coming...
It's a good problem, you grew your business, and things are going swell. You know you are putting out some cash for taxes for 2021. If you just read that sentence and that described you, wouldn't it make sense to take an advance out, write the factor off on your 2021 taxes and then put that money to work in 2022? Think of it this way, when you offset the liability of the tax bill into your receivables that would in theory mean that your cash stays with you, and the funding can be put to work on growing your business.
90% of businesses will qualify for merchant cash advances
A merchant cash advance is not a loan, so applicants with damaged credit usually qualify. The reason is merchant cash advances are based on your revenue. They are predicated against a percentage of your deposits, that percentage determines the payment. For instance, if you are depositing $100,000.00 a month and you sold $50,000.00 of future receivables for $62,000.00 the delivery of payment would be $10,000.00, or $2,500.00 a week, until the $62,000.00 was paid in full but you have that $50,000.00 to put to work. They underwrite faster than loans, and we have seen people with prior bankruptcies get funded.
How do you put a merchant cash advance to work the right way?
Using the example above, you probably thought you would be crazy to do this, but keep reading, yes we know merchant cash advances are not cheap funding options but every cloud has a silver lining. If you were the business in the example shown above that would mean you would have the funds to hire more people, buy stock cheaper, replace or add new equipment, pick up a second location, or even invest in another business. Instead of looking at the factor, what you should look at is the opportunity. Using the example above, if you were a trucking company, would be enough money to put another truck on the road. A construction company can pick up equipment and not have to pay rental fees for something they use daily. A restaurant can ramp up marketing and gain new regular customers, property managers can find another piece of property to buy, it's endless. Whatever improvement you would make should make twice to three times the cost of the factor rate you paid for. This tool can be very useful for businesses that did not qualify for traditional loans or programs.