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Small businesses turn to cash-advance loans

Spiro Dimas, owner of Williston Townhouse Diner, got

Spiro Dimas, owner of Williston Townhouse Diner, got a $100,000 advance to build a 100-square-foot addition. (Nov. 6, 2009) Credit: Newsday / Maria Lopez

When Spiro Dimas wanted to expand his diner this spring, he took a conventional approach and applied to local banks for a loan. But the owner of Williston Townhouse Diner came up empty.

"We were only in business three years, and if your credit score is not perfect, the banks don't want to give you money," Dimas said.

But he found an alternative, tapping into a little-known program run by his credit card processing provider, Melville-based EVO Merchant Services. EVO advanced Dimas $100,000 to build a 100-square-foot addition, which was completed in May.

Terms are not ideal: Dimas is paying back the cash advance in just a year's time at nearly 20 percent interest. Still, he's grateful.

"I needed the funds to grow my business," he said. "Getting the money was a good thing, too, because now we have more customers. Since the addition, business is up significantly."

With many small businesses complaining that traditional loans are nearly impossible to land, EVO president Jeff Rosenblatt said his company - and his industry - is filling a void. "It's either that or having some of our customers go out of business," Rosenblatt said. "We're not a bank, and we really aren't in the business of making loans."

Rosenblatt said credit card processors have offered such cash advances since the late 1970s, but the industry's electronic advancements and the tightening of money by traditional lenders have made it more accessible than before.

Before the economic crisis hit about two years ago, Rosenblatt said his company, which has 220,000 clients nationwide, handled "only a handful of cash advances monthly." Now it's 150 to 200 monthly. "It's a part of our industry that is evolving very quickly," he said.

Typical advances are $50,000 to $75,000, Rosenblatt added; the maximum is about $250,000. Most businesses pay on the advance daily, as the processing company collects credit card receipts.

Since the processing companies have a view of business' daily receipts, they can approve the advances immediately, without fees or credit checks, Rosenblatt said.

He noted restaurants initially accounted for nearly 80 percent of his company's cash-advance business, but "it's about 50-50 now between restaurants and other small businesses."

Mario Saccente, executive vice president of the Long Island chapter of the New York State Restaurant Association, said even with the high rates and short payback terms, many of his members have turned to cash advances.

"When someone needs money, it's an alternative," he said. "Otherwise, there's nothing for a small-business owner to turn to."

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