Coolidge Wall attorney Patricia J. Friesinger is sharing an important warning for business owners about a growing source of financial stress: financing that solves an immediate cash-flow problem but can create a much larger one down the road.
In a new article published by the Dayton Business Journal, “The Hidden Financing Risk Facing Dayton’s Small Business Community,” Friesinger examines the increasing use of merchant cash advances (MCAs) and the significant impact they can have on a company’s working capital.
With more than 25 years of experience in bankruptcy and business reorganization, Friesinger has seen firsthand how otherwise viable businesses can find themselves in financial distress, not necessarily because they lack customers, revenue or opportunity, but because the structure of their financing begins consuming the cash they need to operate.
Merchant cash advances can be particularly attractive to businesses because they offer quick access to capital with relatively little underwriting. But the daily or weekly withdrawals that often accompany these arrangements can create significant pressure when revenue fluctuates or customers are slow to pay.
As Friesinger explains in the article, the danger can intensify when businesses take on additional advances to meet obligations created by earlier financing , a practice commonly known as “stacking.”
Her message to business owners is not that every short-term financing option is inherently problematic. It is that owners need to understand the true cost and cash-flow implications of the financing they accept and recognize when a temporary solution is becoming a recurring necessity.
Perhaps most importantly, Friesinger encourages business owners to seek advice before financial pressure becomes a crisis. Businesses generally have more options when challenges are addressed early, whether that means refinancing, negotiating with creditors, pursuing an out-of-court workout or considering a Chapter 11 or Subchapter V reorganization.
“The key is recognizing the warning signs before temporary financial pressure becomes a permanent outcome,” Friesinger writes.
Click the link to read the full article “The hidden financing risk facing Dayton’s small business community”
Facing Financial Pressure?
If your business is experiencing cash-flow challenges, mounting debt, creditor pressure or concerns about its financing structure, Coolidge Wall’s attorneys can help you understand the options available and determine a path forward. You do not have to wait until the situation becomes a crisis to start the conversation.
