Interview with Vincent Loforti, CEO, Anchorvia Financial

When I advise business owners on choosing capital, I start by asking questions. The first one is always, “What do you need the money for?” Then I help them figure out whether it actually makes sense for them and their business. I really do care about the health of my clients and their businesses.

When I first got into the business, I was primarily focused on sales and getting deals funded. In all honesty, when you're a young guy barely getting by, your first priority is usually making money. As I got further into the business, I realized that if I really wanted to be an expert at what I do, I needed to understand underwriting and how funders actually evaluate risk. It helps us get more deals approved, saves our funding partners time and, more importantly, allows me to do a better job for the business owners we're working with.

Take a construction company as an example. Say they just landed a new build, but they don't have the upfront capital to buy materials or cover payroll for the first 15, 30, or 60 days before the client's first payment comes in. That's a short-term need. If they need to buy a new truck, a large piece of equipment or rent a new building, that's long-term. That's definitely not something you want to use a cash advance for, because there are other options. Unfortunately, a lot of small business owners either don't know what those options are or don't qualify for them yet. They need a qualified professional to walk them through what's available, then coach them on how to get into a position to qualify for a better product.

A merchant cash advance is generally structured as a purchase of future receivables rather than a traditional loan. You get money now, and the provider takes a set amount out of your deposits until it’s paid.

The pricing is a factor rate, not an interest rate or an annual percentage rate (APR). Those aren’t apples to apples. A factor rate is the total amount to be repaid divided by the amount advanced, before fees. It does not annualize the cost the way a loan APR does. So, if someone quotes you a factor rate next to a loan rate, you’re comparing two different measuring sticks.

Here’s how I walk an owner through a fair comparison. First, get the net amount you actually receive after every fee. Then, get the total you pay back in dollars. Then, find out how long the money stays out and how often the payment hits. A shorter payback usually means a bigger daily or weekly hit. A longer payback usually means a smaller hit but more total days with money leaving the account. Put those next to a term loan the same way: net funded, total payback, payment size and schedule. Then decide which one the business can actually live with.

The ranges I use below are based on what I typically see in the files I work with, not on a published market survey. Every funder is different, and these figures change.

We’ll use $100,000 because it’s easy math. Businesses with strong financials and strong credit might see a factor rate of around 1.12 to 1.29. At 1.29, the total payback is $129,000. Fees usually come out of the funding, so the owner might net closer to $97,000, not the full $100,000.

Weaker financials, a low average daily balance, overdrafts, uneven revenue, or credit in the mid-500s to mid-600s with maxed-out cards or collections often result in a factor rate closer to 1.37 to 1.49. At 1.49, the payback is $149,000, and fees are often higher, so the net funding might be more like $92,000 to $95,000.

None of that means an advance is right just because the owner needs money. Sometimes the better move is to wait, clean up the books and come back later.

It comes down to whether the business can make the payments without choking, especially in a slow month.

I review bank statements digitally for every file. Deposit patterns matter. A restaurant that receives money every day can often handle a daily or weekly pull. A contractor who gets paid once or twice a month is different. Those pulls keep coming on the empty days, and that’s when payroll and suppliers get tight.

Here’s how I judge affordability: Take the worst month from the last six and subtract the total proposed financing payments for that month. What’s left still has to cover rent, payroll, suppliers and the basics. If it doesn’t, it’s the wrong fit, even if an average month looks fine. Revenue swings. You lose a client, a truck breaks down or a job gets delayed. The payment still comes out.

If the owner doesn’t qualify for a term loan or a line of credit, coaching on setting money aside for those pulls can help. But setting money aside only works if the worst-month math still clears.

In a hardship, some providers will pause or reduce payments for a stretch if you call them early. That depends entirely on the provider and the agreement. It is not guaranteed, and I never promise it. Stacking advances makes the cash-flow squeeze worse. I’ve seen owners get into a bad spot when new pulls start covering old ones. There’s no magic number that fits every business. The risk goes up as more daily or weekly payments stack on the same deposits.

For a Small Business Administration (SBA) loan, cash flow is often central. Lenders want to know that the business can repay, and cash-flow analysis is a big part of that. Tax returns and credit still matter a lot in the files I see, as do the rest of the financials.

In my experience over 13-plus years in commercial finance, many owners write off as much as they can. That’s between them and their accountant. But when the returns show very little profit, it can be a hard conversation, even when the bank account looks healthier day to day. Lenders weigh these pieces differently. I’ve sent the same file to five lenders with similar guidelines and received two approvals and three declines.

On credit, the score makes a difference, but the profile matters most. Someone with a high score and only a year or two of history on a couple of cards can have a harder time than someone with a lower score, an older mortgage and cards they’ve paid on for years. That doesn’t mean the person with the high score won’t qualify. Every lender is different.

A line of credit is great because you can use it for pretty much anything. If you’re able to finance the equipment directly, that leaves your line open in case you need it. Depending on the deal, equipment financing rates can be in the same range as a line of credit or a term loan. A lot of times, it makes sense to finance the equipment directly, but it really depends on the deal and on who the funder or lender is. Rates and underwriting criteria change all the time across the board. What makes sense for one business may not make sense for another, even in the same industry.

They go with the first option presented to them. Marketing is very aggressive in the financial world, and a lot of business owners don't understand what options are truly out there for them.

The best way to compare offers is to be patient. Every funder and every lender has different underwriting guidelines, so get offers from more than one. One might come back in 24 to 48 hours, but the fastest deal isn't always the best. When you compare, look at the rate, the total payback, the fees and the payment. One deal might cost more overall but have a lower payment, and that can be better for cash flow. Or it's the other way around. A lower payment isn't always what matters most. If the owner can handle a higher payment, the lower total cost may be more important.

The other mistake merchants usually make is waiting until they absolutely need the money and the business is already in trouble before they look for help. That's actually the worst time to try to get funding.

They should know what their credit looks like and what's on their credit report. They should have at least six months of business bank statements. If they have profit and loss statements, balance sheets, accounts receivable (AR) and accounts payable (AP) reports and tax returns, that's great. For a merchant cash advance, you typically just need your bank statements. For anything else, like a line of credit, a term loan or especially an SBA loan, you're going to need full financial documents, kind of like when you're buying a house.

If you're looking for long-term financing and don't need a quick fix, one of the very first things to do is pull your three-bureau credit report and check it for errors. Sometimes there's an account or a collection on there that doesn't belong to you, and you want that removed. Get your finances in order, too. Keep your bank statements clean. If you're constantly overdrafting, find a way to stop. You want everything to look as good as possible, and the exact steps depend on what you're going after.

If you need cash quickly, you're not going to have 90 days to prepare. But if you're buying a building or financing heavy equipment—something you don't need tomorrow or the next day—you can take the time to get your credit and finances ready. Have all your financial reports in order, because once you get into better products like equipment financing, term loans and lines of credit, lenders are going to want to see more than your bank statements.

Pay down your credit cards. Make sure your bank account balances are healthy. Don’t overdraft your account, and don’t use your business bank account as your personal account. Try to keep your revenue relatively consistent.