The expensive money shows up when cash is already tight.

The expensive money shows up when cash is already tight.

This week's Federal Reserve Beige Book had a note from the Kansas City District worth sitting with. Organizations that work with small businesses said credit quality and cash flow were getting worse for their clients. They also said the SBA had tightened lending standards. So more owners were turning to merchant cash advances to cover overhead and payroll.

An advance can put cash in the account fast. It usually gets paid back as a cut of every card sale until the balance is cleared. Contacts told the Fed that the high cost of those advances, and how little education there is about how they work, was making a hard situation harder.

That is not an argument against ever using one. It is an argument against signing before you can answer three questions in writing: what percent of each sale leaves, for how many weeks, and what the total cost is compared with a line of credit or a short bank loan.

If those numbers are fuzzy, wait a day. The wire that solves this Friday can own next month's deposits.

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