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Slow down before taking funds for your business

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The problem with some M&A funding platforms can be summed up in some of the advertisements that come with them. “Every entrepreneur should have the opportunity to get financing,” said one.

No, they shouldn’t.

At least not immediately. Not until they take a hard look at what funding they will actually need, what that funding will cost, and what it will mean for sustainability and growth. Title-loving but financially illiterate entrepreneurs shouldn’t have the option of securing financing for an acquisition until they know how much it will cost compared to traditional financing methods, and what it means for success and long-term survival. .

New-to-game platforms such as Boopos, Fleximize, and Uncapped provide financing for the purchase or growth of small businesses. Benefits include fast prequalification in 48 hours or less, turnaround time of just a week, and no tie-up with your other businesses or personal assets.

This all sounds enticing, especially against the backdrop of tighter bank funding requirements and government-backed funding programs. Boopos, for example, advertises that it will lend up to four times a company’s annual revenue provided it has at least $100,000 in annualized revenue. A fast pre-approval process makes it easy to close a deal within 45 days.

So what is the problem?

In a word, speed.

In one sentence, it could be “speed kills”.

I always tell people that whenever you go to borrow, take it slow.

Why? Because you might not like the long term effects of fast action. Yes, you might need less collateral to qualify for these loans and they might come faster, but they also often come with a higher interest rate and shorter term. These platforms typically require the loan to be repaid within one to five years, and this combination produces a higher monthly payment that can rob you of the ability to hire, reinvest, and grow or make a profit.

While a loan sanctioned by a bank or Small Business Administration (SBA) generally takes longer to qualify and longer to close, a typical loan is spread over 10 years, at or near market rates. , depending on the creditworthiness of the customer. Borrowing $1 million this way, at 8.25%, would require a monthly payment of $12,265.

Now let’s acquire the same financing via a financing platform like those offered by Fleximize or Boopos. That same million dollars – which, admittedly, will be used up more quickly – will have to be repaid at a higher interest rate – up to 20%, within five years or less.

At this rate, over three years, the required monthly payment for the upstart entrepreneur would be – wait for it – $37,163.

These are just examples, and these platforms boast a range of products suitable for the entrepreneur. These lenders want their upstart to succeed, and the bigger the better. Reviews are also overwhelmingly positive, and Boopos, for example, pledges to “partner” with its borrower, using its investment expertise to analyze target companies.

Indeed, among the many catchphrases to be wary of in advertisements for these products, “amicable financing” is one that comes back and stands out. Rather than the speed of funding or any support promised by its team of experts once you get started – a pseudonym to vet investors – focus on what your monthly payment can be and if you can afford it. Or want.

Be careful, take your time and read the fine print. A loan that offers to provide quick cash may seem as simple as a hot apple pie, but careful examination may reveal enough to kill even the most promising long-term plan.

Ami Kassar is the founder and CEO of MultiFunding, a Philadelphia-based consulting firm that specializes in helping business owners across the United States develop creative and cost-effective alternatives for their business needs and structure. indebtedness. He can be contacted by email at [email protected] or online at multifunding.com.