"Many dealers soon find themselves in the position of making credit card payments on inventory contracts that have paid out"

Bill Lassiter of Lynnray Financial suggests that it would be easier to recover from a gunshot wound to the foot than from using credit cards to finance inventory purchases. "Even if you didn't recover from the gunshot, you would still have a healthier business while hopping around on the one good foot," he said. Lassiter cautions RTO dealers that using revolving credit cards to finance inventory can often become a "Big Business Problem."

Lassiter explained that, because of the lack of long term inventory financing available to the small business person, a lot of Rent to Own owners use their personal credit cards to finance inventory. It seems a flexible and relatively competitive addition to other methods of financing, especially if the cards initially offer low rates.

1. The Interest Problem – Bill says he spoke with one RTO owner who used a 0% interest credit card for purchases. After nine months the rate rose to7.45%. He made one payment that was posted three days late and saw his interest rate climb to 14.99%. Three months later his statement failed to arrive, so he made a responsible call to the issuing bank and asked that his statement be faxed to him. Even though he used "speedpay" phone payment at an additional $15.00 charge, because he was 8 days late, the interest rate went to 28.74% and a late fee was added to his balance. At this interest rate if your balance is $50,000, it takes $1,200 monthly just to cover the interest.

2. High Balance Problem – Many dealers soon find themselves in the situation of carrying high credit card balances that begin to negatively impact their personal credit score. All personal credit is now "scored". Many factors go into this score. Just because you always pay your bills on time does not mean that your score is good. High credit card balances and a lot of credit inquiries will hurt your score. The scoring system was not designed with the small businessman in mind. The scoring model does not know that the business is paying the cards and that credit inquiries are business related.

When cash flow is tight, there is always the temptation to make a minimum payment. All businesses will cycle. Many dealers soon find themselves in the position of making credit card payments on inventory contracts that have paid out. You will soon need to be bailed out, and hopefully this option is available to you. Lassiter notes "We see personal credit showing hundreds of thousands of dollars of inventory purchases on credit cards. No one ever intends to be caught in this position, but have been trapped by very sophisticated marketing."

Lynnray Financial offers Term Programs for 24 and 27 months at fixed rates that give the RTO operator a positive cash flow with the disciplined reduction of the debt over the term of the RTO contract. It is a healthy financial solution with no hidden pitfalls.

Call Bill Lassiter at 800-535-4138 or e-mail blassiter@lynnrayfinancial.com  for information and consultation.