Charles Leikauf, a former skincare company CFO, took a $1M loan advertised as a 5% fixed fee. The lender structured daily repayments as a percentage of sales, which worked out to roughly 60% APR. He warns merchant cash advances are predatory and rarely worth the cost.
It's 100% true. It's terrifying. It's so manipulative. There's a company called Clear Capital or ClearBank or Clear CO. They changed their name a couple times because they're shady. And I was the CFO of a skincare company at the time, and they wanted to loan us. I think it was $5 million. And I can go out and get $5 million from a hedge fund at the time for a 12% interest rate on a line of credit. So I called them back because they were trying to get a hold of me, and I said, you know what? If you can do it lower than a 12% interest rate, you're good to go. Apr, I'm good to go. We'll sign up for the line of credit. They called me back and like, yeah, but you can definitely do it. I was like, don't get me on the phone unless you can get me under a 12% interest rate. I on the phone, and they present for mass, takes a million dollars, paying back a 5% fee, which would be $50,000, and be like, oh, the fee is only $50,000. We beat your 12% interest rate. I go, okay, well, how's it paid back? And they're like, oh, well, daily. And they're like, well, as a percentage of your sales. I was like, okay, 12% or 15% of our daily sales. We're doing, I think, $3 million a month at the time. And it ended up being, if you do the math, a 60% interest rate, because the APR, right, it's annual percentage rate. And so when you do the math, it was 60% annual percentage rate. So I brought up my little financial calculator calculated on the zoom call, and guy a liar, and told him I was going to truncate this call, and I hung up on him. Two days later, they call me back, and they say, hey, you guys won a prize for $500. You got to get the owner of the business on the phone. Well, I was like, well, I'm the cfo, and the owner's. The owner's time is worth More than $500 an hour, and my time's worth more than $500 an hour. And I don't want you lying to the business owner. So, no, I don't want to collect that. That $500 gift that you're not going to send us. And the owner of the business, this woman or one of the sales reps pretending to be the woman, I don't know, was like, hey, Charles, I love the brand that you guys have. It was a skincare business. It was organic. I have a mercury intolerance and it really, it's mercury. Everyone has an intolerance to mercury. It's a heavy metal. It's poisonous. The owner inventing things to try and get us on the phone to sell us an unethical loan, thinking that we're stupid. And the crazy thing is is if they're doing this to me back when I was a cfo, that means this worked for so many other people. So you have to watch out for predatory loans from people who provide merchant cash advances. They're appropriately priced. If you have terrible credit need money immediately. For most of the people, they are not a good fit, not a good product. One out of like a million times it is an appropriate product. 99.9% of the time it's not an appropriate product. So don't get scammed, folks. Then your finance tip of the day.
