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3 Things You Should Know About Small Business: Jan. 24

NEW YORK (TheStreet) -- What's happening in small business today?

1. Franchisors get creative with franchisee recruiting efforts in 2013. Though they still rely on grassroots approaches to recruiting new franchisees, given the struggling economic recovery, quick-service restaurant franchises are getting innovative with the way they acquire new franchisees, according to a QSR Magazine article.

"This year, we'll be looking at a number of people who have just sold to McDonald's, for example," says David Prokupek, chairman and CEO of Smashburger. "We'll find folks who have done well and have enough capital. Because we are building both corporately and with multi-unit operators. We are pretty strategic."

Cousins Subs is pushing more multi-unit franchising in 2013, specifically focusing on investors interested in owning three to five units, the article says. It has recently launched a "Founders Program" that will reinvest all franchise fees into local-store marketing for the properties.

The International Franchise Association says its Franchise Expo South in Miami this month brought record attendance, indicating strong interest, QSR says.

2. SBA launches online government-contracting tool. The Small Business Administration launched an online marketplace, RFP-EZ for government projects, which will streamline the search and bidding process for small federal contracts, according to The Washington Post .

3. Merchant cash advances: Yay or nay? Merchant cash advances have a bad reputation, from the horror stories of dangerously high return rates to irresponsible lenders. However, plenty of businesses have used cash advances to help them stay in business, grow and thrive.

Between the fiscal cliff, a slow recovery and the recent devastation that Hurricane Sandy has caused to small businesses in the New York tri-state area, merchant cash advances are becoming increasingly needed.

Merchant cash advances require no personal guarantee, no collateral and no upfront fees or costly paperwork. It allows successful businesses to get immediate liquid funds to invest in expanding their business without the traditional restrictions. There is a quick turnaround time and access to larger advance amounts than many would be able to get through a loan or new line of credit, and they open up new and bigger opportunities for successful business owners, says Merchant Solutions Group CEO and founder Bill Morrissey.

Morrissey provides four myths about merchant cash advances.

  • 1. Cash advances can lead to further debt problems. Unlike a loan, with a merchant cash advance you're returning the advance by selling money your company makes in the future. If your company goes out of business, you are not held accountable for the money owed. Responsible merchant cash advance lenders take on 100% of the risk associated with the loan.
  • 2. High interest rates take advantage of struggling businesses. Merchant advances do not use interest. Based on a company's financial profile, which is analyzed by the merchant cash lender, an agreement on returns is made and paid back through a percentage of future credit card sales, not a fixed amount. Essentially, the lender profits from the client's future sales, which have been pre-purchased at a discount.
  • 3. Paying back a cash advance can leave the business owner empty-handed. Merchant advances are paid back through an agreed-upon percentage of credit-card sales the company brings in each month. If a business is doing well, the time frame to pay this off might be very short, whereas if a business is struggling, this may take a longer time to pay off. Regardless, since the monthly payback is limited to the agreed upon percentage from credit card sales, there is always income untouched and uncharged for the business.
  • 4. Merchant cash advances are a last resort for struggling businesses. Each business owner needs to decide what is right for them, and while merchant advances are an obvious resource for a struggling business that is unable to get a traditional bank loan or line of credit (especially in today's economic climate), they are also often used by successful businesses who prefer the logistics of a merchant cash advance.

-- Written by Laurie Kulikowski in New York.

To contact Laurie Kulikowski, send an email to: Laurie.Kulikowski@thestreet.com.

>To submit a news tip, email: tips@thestreet.com.

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