Payday Loans for Small Business: Watch Out

Of course, the ads don’t call them payday loans. They mask these loans as something fancy: Factoring, invoice financing, receivables financing, asset-based lending, etc.

It’s all the same thing. It’s just like you, as a small business owner, walking down to the nearest payday lender and getting some cash.

I originally saw the loan ads popping up on my Facebook feed. I’m probably profiled by Facebook as a small business owner, so these ads are served up to me with some regularity. The invoice financing is what really gets my goat.

You’re a photographer and do stellar work for a wedding. You invoice the customer. You can then recruit one of these companies who’ll basically pay you cash for the invoice. The only catch? You pay exorbitant fees.

Companies like Kabbage, Paypal, OnDeck, Fundera, FundBox, MoneyTree…the list goes on and on. Payday lenders for small business owners. That’s all they are. (That’s not the only product a lot of them offer, but their marketing material sure makes you think they’d prefer you choose their cadillac options that result in APRs in the 80% range.)

So yes, you savvy small business owner, if you’re financing your future receivables, future sales stream, future collections, etc. then you are doing exactly what someone’s doing when they walk into that payday loan shop and are taken advantage of. You’re stepping into a vicious cycle that’s tough to get out of. Please, please stay away.

No, not all debt is bad.

Just like with consumer debt, not all debt is bad. I like the idea of borrowing money to buy a reasonable home. I can stomach the idea of borrowing a reasonable amount to pay for college (Reasonable: You can pay the loan off within one year of graduating. Yes, there are exceptions I won’t list here, but the odds of you being an exception are pretty slim :))

But payday loans? We all can agree that those are bad for consumers. Horrible for consumers. They’re predatory nasties and should be avoided at all costs.

Payday loans for small business owners? Horrible. Nasty. Avoid them at all costs. I can’t stand seeing those ads. They like to make you feel like you’re so savvy–like you know a secret unknown to the masses. There’s no secret. These companies are making a killing off you, and you, as the small business owner, are the target.

Embrace scarcity.

I know what it feels like to have resources be scarce. To see them dwindling right before your very eyes. It’s disconcerting. It’s discouraging. And it’s rough.

However, you’ve got to see scarcity as creative fuel. See it as a blessing. It will force you into action. It’ll make you entertain options previously out of the question. If you behave as if debt is not an option, you’ll see your will unleashed on your business. Don’t underestimate the power of scarcity to give you unbelievable clarity. Clarity to know exactly what you need to do, when it needs to be done, and how you’re going to get there.

Don’t turn to debt. Don’t kill that scarcity by masking reality with a temporary cash advance on some invoices. Embrace scarcity and watch the magic happen.