Mike Andes and others explain how merchant cash advances and high-cost loans from payment processors expose weak businesses rather than fix them. A roofing company took on $14,000 in monthly debt obligations and $600 daily repayments, only to spiral toward bankruptcy. Debt doesn't solve problems; it accelerates them.
Debt doesn't solve your problems. It only delays the moment you're forced to tell the truth. I was with this turnaround and they were refinancing a bunch of their debt. It was a roofing company and they were taking a whole bunch of payments and loans from their payment processor. $14,000. Is that like a payday loan kind of thing?
Or like from Stripe?
Or where does that come from?
So, it's an MCA. Okay. So, it's a daily.
Daily. So, you're paying how much on that every day right now?
So, it's a total of 2 different loans. Okay. And it's— It's about $600 a day, which is, that's what's killing me.
At the time, it like bailed us out, but now we're like, okay, we're paying out more. We're paying $14,000 in loans a month.
QuickBooks, Stripe, whatever your payment processor is, many times will offer you money with a click of a button. And what they don't tell you is they're actually charging 30%, 40% plus interest per year, which means if I take $100,000 out, in the next year, I'm paying extra $30,000 or $40,000 in interest. Once you go the way of 20%, 30%, 40% interest on loans, it is very difficult to get out of that hole. And a lot of times, our first inclination is, "Well, I'll get more debt and I'll refinance this other debt." This is the debt spiral that I see so many people going down. And no one talks about this because when you fail and you declare bankruptcy and you shut the doors of the business and you're completely insolvent and you have no more money, when that happens, no one's posting about that on social media. If you're going to go into debt, if you're going to pour more fuel on the fire, inject more liquidity into the business, you will grow faster. But realize, if your business is unprofitable, adding more debt will only make it unsuccessful and fail that much faster.
