Short Term Fintech & Sales-Based Working-Capital

Existing financing through payment processors, accounting platforms, online lenders, or merchant cash advance providers is not automatically grounds for declining an optometry practice loan. It is, however, a material underwriting red flag because it may indicate that the practice has experienced cash-flow pressure and because the repayment structure can materially affect liquidity, debt-service capacity, collateral priority, and future borrowing flexibility.

The lender’s concern is generally not the name of the provider. The concern is what the financing reveals about the practice and what obligations the agreement creates.

The Products Are Not All the Same

A lender should not automatically classify every Square, PayPal, QuickBooks, or online financing product as a merchant cash advance.

For example:

• Square Loans generally collect a fixed percentage of daily card sales and may impose minimum repayment requirements.
• PayPal Working Capital generally collects a selected percentage of PayPal sales and requires a minimum amount to be repaid during each 90-day period.
• QuickBooks Term Loans generally use automatic weekly or monthly payments.
• A traditional merchant cash advance may be documented as the purchase of future receivables rather than as a conventional loan.

Accordingly, the presence of the obligation prompts the lender to obtain and review the actual agreement rather than rely on the provider’s marketing description.

1. The Financing May Signal an Underlying Liquidity Problem

The first question a commercial lender will ask is:

Why did an otherwise established optometry practice need fast, short-term financing?

An optometry practice with adequate profitability, reliable collections, sufficient working capital, and access to conventional credit would ordinarily be expected to fund routine expenses through operating cash flow, reserves, or appropriately structured bank financing.

Fintech or merchant cash advance financing may indicate that the practice experienced difficulty paying:

• Payroll.
• Rent.
• Optical laboratory balances.
• Frame or contact lens inventory.
• Taxes.
• Equipment obligations.
• Existing debt.
• Owner distributions.
• Other recurring expenses.

The financing may have addressed a legitimate one-time timing problem. It may also reveal insufficient working capital, declining profitability, slow insurance collections, excessive owner withdrawals, weak budgeting, poor accounts-receivable management, or an inability to qualify for conventional financing.

Vision One’s advisory framework recognizes that debt structure can significantly affect practice cash flow, repayment capacity, flexibility, and long-term stability. The relevant question is not merely whether financing is available, but whether the structure supports the long-term needs of the practice.

2. Daily and Weekly Withdrawals Can Materially Reduce Debt-Service Capacity

Commercial lenders generally evaluate repayment capacity using annual debt service. A daily or weekly payment must therefore be converted into an annual obligation.

For example, a weekly payment of $4,000 represents approximately:

$4,000 × 52 weeks = $208,000 of annual debt service

A $1,000 daily debit collected five business days per week may represent approximately:

$1,000 × 5 days × 52 weeks = $260,000 annually

These amounts can materially change a practice’s debt-service coverage ratio.

A practice may initially report adequate cash flow for a proposed acquisition, expansion, real estate loan, or refinance. Once the existing daily and weekly obligations are properly included, the available repayment margin may become insufficient.

The OCC’s credit-risk guidance states that loans expected to be repaid from operating cash flow should have an acceptable margin for repayment of principal and interest and that anticipated future cash flows should be reasonable and documented.

Optometry-Specific Cash-Flow Concern

An optometry practice does not necessarily collect all revenue evenly throughout the month. The practice may immediately receive card payments for eyewear, contact lenses, copayments, and patient balances, while medical and managed-care reimbursements may arrive later.

A percentage-of-card-sales lender may therefore take part of the practice’s most liquid receipts before insurance collections arrive. The practice must still pay:

• Frame and lens costs.
• Laboratory expenses.
• Payroll.
• Rent.
• Inventory.
• Taxes.
• Insurance.
• Other debt payments.

The payment may technically adjust with card sales, but it is deducted from gross receipts not from the practice’s net profit.

3. The Financing May Be More Expensive Than Management Realized

These products may use a fixed fee, factor rate, total repayment amount, daily payment, or weekly payment rather than a traditional interest rate.

That can make it difficult for the practice owner to compare the financing with a conventional term loan or line of credit.

The Federal Reserve’s 2026 Small Business Credit Survey found that 60% of businesses that borrowed from online lenders reported that their actual borrowing costs were higher than expected. Borrowers at traditional banks were substantially less likely to report that result.

The FTC has also explained that merchant cash advance arrangements may require repayment of the advance plus a factor, with daily payments or withdrawals from business receipts.

Simplified Example

Assume a practice receives $100,000 and must repay $120,000 over approximately six months.

The stated financing cost is $20,000, or 20% of the amount advanced. However, because the practice does not retain the full $100,000 for an entire year—and the balance is being reduced throughout the repayment period—the annualized cost can be considerably higher than 20%.

A conventional lender may view this as an indication that:

• The practice accepted financing without adequately comparing costs.
• Management focused on access to cash rather than repayment capacity.
• The current financing burden may be consuming earnings that would otherwise support the proposed bank loan.
• The practice may be vulnerable to another liquidity shortage.

The existence of a fixed fee may also mean that early repayment does not reduce the total cost. Square, for example, states that its total loan cost does not change when the borrower prepays.

4. The Repayment Period May Not Match the Use of Funds

Commercial financing should generally be structured so that the repayment period reasonably corresponds with the useful life and expected cash-flow benefit of the financed asset or project.

A commercial lender becomes concerned when short-term daily- or weekly-payment financing has been used for:

• Long-lived diagnostic equipment.
• Major renovations.
• Leasehold improvements.
• A practice relocation.
• Opening a second office.
• Commercial real estate.
• Practice acquisition goodwill.
• Significant technology investment.

An OCT system, remodel, or second location may generate benefits over five, seven, ten, or more years. Requiring the practice to repay the cost over six to eighteen months can place disproportionate pressure on current cash flow before the investment has time to produce its expected benefit.

This is a maturity mismatch.

The underlying investment may be reasonable, but the financing structure may be inappropriate.

5. Repeated Use Can Indicate a Renewal or Stacking Cycle

One isolated, fully disclosed obligation may be manageable. Repeated financing is substantially more concerning.

A typical cycle may develop as follows:

• The practice accepts a short-term advance.
• Daily or weekly payments reduce operating cash.
• The practice experiences another cash shortage.
• A new advance is obtained before the first is fully repaid.
• Multiple providers begin withdrawing payments.
• New financing is used partly to support prior financing.

This practice is commonly described as stacking.

Participants in an FTC forum on small-business financing discussed concerns that high-frequency repayment can lead businesses to renew advances or obtain multiple overlapping obligations, with each additional obligation increasing the pressure on cash flow.

A commercial lender will examine whether the practice:

• Has refinanced one advance with another.
• Has multiple daily or weekly withdrawals.
• Regularly accepts renewal offers.
• Has borrowed to make payments on existing debt.
• Will need another advance after the proposed bank loan closes.

Repeated reliance can indicate that the practice’s operating model is not producing enough cash to support its obligations.

6. The Obligation May Not Be Properly Reflected on the Debt Schedule

Merchant cash advances are sometimes legally characterized as purchases of future receivables rather than loans. Other products are conventional business loans even though repayment is tied to sales.

This distinction can create inconsistent financial reporting.

A practice owner may omit an obligation from the business debt schedule because:

• The provider calls it an advance.
• The agreement describes a receivables purchase.
• The obligation does not appear as a traditional loan in the accounting records.
• Payments are deducted from deposits before the net proceeds reach the bank.
• Management does not consider it “bank debt.”

From a commercial underwriting perspective, that classification does not eliminate the economic obligation.

the practice must surrender daily receipts or make recurring withdrawals until a specified amount is paid, the lender will generally treat the payments as a debt-like fixed charge when evaluating cash flow.

An undisclosed obligation creates two separate concerns:

• The cash-flow analysis may be materially overstated.
• Management’s credibility and financial-reporting reliability may be questioned.

The safest practice is to disclose every financing arrangement, whether it is legally described as a loan, advance, receivables purchase, factoring agreement, line of credit, or sales-based financing obligation.

7. Existing Liens May Interfere with the Commercial Lender’s Collateral Position

Some fintech providers may obtain a security interest in business assets and file a UCC financing statement.

Square currently states that it may take a security interest and file a UCC financing statement for loans exceeding $100,000 and may require a personal guaranty for loans exceeding $250,000. Those are Square-specific terms, but they illustrate why the lender must investigate the actual collateral arrangement.

A UCC filing may cover:

• Accounts receivable.
• Equipment.
• Inventory.
• General intangibles.
• Deposit-related rights.
• Substantially all business assets.

That can conflict with a commercial lender’s requirement for a first-priority lien on the practice’s assets.

The lender may therefore require:

• A current UCC search.
• A payoff statement.
• Payment of the fintech obligation at closing.
• A UCC termination statement.
• Confirmation that receivables are no longer assigned.
• Subordination by the existing provider.
• Evidence that no additional financing can be obtained without approval.

The proposed lender will not ordinarily assume that a balance has been paid merely because the automatic deductions have stopped. It will want documentary evidence that the obligation and lien have been fully released.

8. A Receivables Purchase May Affect the Lender’s Access to Cash Flow and Collateral

A merchant cash advance may involve the purchase of future receivables. In a credit card-based arrangement, the payment processor may direct a percentage of receipts to the financing provider. In an ACH-based structure, the provider may estimate future receipts and debit the business operating account.

This matters because accounts receivable and cash flow may be:

• The primary source of repayment for the proposed commercial loan.
• Part of the proposed lender’s collateral.
• Needed to support payroll and operations.
• Included in the lender’s liquidity analysis.

A lender becomes concerned when another financing provider has contractual rights to receive business collections before those funds are available to the practice or the lender.

The issue is particularly important when the commercial lender expects a first lien on accounts and general business assets.

9. Automatic Withdrawals Can Create Operational Risk

Automatic repayment can be convenient, but it also means the financing provider may withdraw funds before the practice pays:

• Payroll.
• Rent.
• Taxes.
• Insurance.
• Laboratory invoices.
• Critical vendors.
• Other loan obligations.

Square Loans may collect a percentage of daily card sales and, when sales do not satisfy the required minimum, may debit the remaining amount from the Square balance or linked business bank account. PayPal Working Capital also requires a minimum amount to be paid during each 90-day period.

A commercial lender will review bank statements for:

• Overdrafts.
• Returned ACH items.
• Negative collected balances.
• Transfers from personal accounts.
• Delayed payroll.
• Repeated emergency deposits.
• Multiple financing debits.
• Declining average balances.

Even when no formal default has occurred, repeated high-frequency withdrawals can create ongoing operational instability.

10. The Obligation Can Reduce Practice Value and Financeability

Existing fintech financing does not necessarily reduce the operating value of a practice dollar for dollar. It can, however, reduce:

• Available cash flow.
• Working capital.
• Seller net proceeds.
• Debt-service capacity.
• Buyer confidence.
• Financing flexibility.
• The ability to complete an ownership transition.

A practice may have meaningful enterprise value but still lack sufficient financeability if existing obligations consume the cash flow needed to support buyer compensation, acquisition debt, working capital, and continued operations.

Vision One’s lender-view financial analysis specifically considers historical cash flow, normalized earnings, debt-service coverage, buyer compensation, working capital, collateral, transition risk, and financing capacity. A practice may have value, but the transaction must also support repayment and long-term business continuity.

Existing MCA or fintech obligations may also complicate a practice sale when:

• A lien must be released.
• The provider has rights in receivables.
• The agreement restricts an ownership change.
• A fixed fee remains due after early payoff.
• The seller has not disclosed the obligation.
• The buyer’s lender cannot obtain the required lien priority.

11. It May Raise Questions About Management and Financial Discipline

Commercial lending includes an evaluation of management quality.

The lender may ask whether the owner:

• Maintains current financial statements.
• Understands cash flow.
• Prepares operating budgets.
• Monitors accounts receivable.
• Maintains adequate liquidity.
• Compares financing alternatives.
• Understands loan documents.
• Discloses all obligations.
• Matches financing terms to the use of proceeds.
• Controls owner distributions.

Use of one fintech loan does not establish poor management. However, repeated, expensive, undisclosed, or improperly structured financing may suggest that management is reacting to financial problems rather than planning for them.

The lender will want to understand whether the practice’s cash shortage was:

• A one-time event.
• A timing difference.
• A temporary disruption.
• A recurring operating deficit.
• The result of owner withdrawals.
• The result of weak collections.
• The result of excessive debt.
• The result of an undercapitalized expansion.

12. The Existing Obligation Can Prevent the Proposed Loan from Solving the Problem

A practice may request a conventional loan to refinance a merchant cash advance or online loan. Refinancing can be beneficial when it replaces high-frequency payments with a longer, more manageable structure.

The lender must still determine whether the refinance actually solves the underlying issue.

For example, refinancing may not be effective when:

• The practice remains unprofitable.
• Owner distributions remain excessive.
• Taxes are still unpaid.
• Collections remain weak.
• Multiple advances remain outstanding.
• The borrower intends to obtain another advance after closing.
• The proposed loan does not include sufficient working capital.
• The monthly savings will be absorbed by another operating deficit.

The lender must analyze the practice on a post-refinance basis and determine whether it can operate without returning to alternative financing.

When the Financing May Be Less Concerning

The obligation may be manageable when all of the following are present:

• Less concerning characteristic - Why it helps
• One isolated obligation - Reduces concern about recurring dependence
• Clearly documented one-time purpose - Identifies a specific reason and repayment source
• Fully disclosed at application - Supports management credibility
• Modest payment relative to cash flow - Limits the effect on debt-service capacity
• Strong historical and post-financing liquidity - Provides an operating cushion
• No repeated renewals or stacking - Reduces refinance-dependency risk
• Short remaining repayment period - Limits future exposure
• No conflicting lien, or prompt release available - Protects the new lender’s collateral position
• Strong post-payoff debt-service coverage - Demonstrates sustainable repayment capacity
• Corrected underlying cash-flow issue - Reduces the likelihood of recurrence

A QuickBooks term loan with manageable monthly payments, for example, may be viewed differently from three overlapping merchant cash advances with daily withdrawals. The lender must evaluate the actual structure rather than rely on a broad category.

Recommended Commercial Underwriting Review

When an optometry practice has this type of financing, the lender will often require:

• Every loan, advance, factoring, and receivables-purchase agreement.
• The original amount advanced.
• The amount actually deposited.
• The fixed fee or total purchased amount.
• The current contractual payoff.
• Daily, weekly, and monthly payment information.
• The percentage of collections withheld.
• Minimum repayment requirements.
• Prepayment provisions.
• Personal guaranties.
• Security agreements.
• UCC financing statements.
• Renewal and refinancing history.
• At least twelve months of bank and processor statements.
• A complete business and personal debt schedule.

The lender will then:

• Annualize the actual recurring payments.
• Recalculate historical and projected debt-service coverage.
• Determine the effect on operating liquidity.
• Identify the original use of proceeds.
• Determine whether the financing is recurring.
• Stress-test collections and cash flow.
• Verify lien priority.
• Require payoff and lien release when appropriate.
• Consider a prohibition on additional debt without prior approval.
• Confirm that the practice can operate after refinancing without obtaining another advance.

This approach is consistent with Vision One’s own underwriting framework, which subjects outside project financing to lender review and evaluates practice cash flow, debt-service coverage, liquidity, collateral, and advance rate when making a commercial credit decision.

Summary

A borrower’s use of short-term fintech or sales-based working-capital financing is considered a material credit concern because the obligation may indicate historical liquidity pressure and requires high-frequency repayment from operating receipts. The arrangement may reduce sustainable cash flow, weaken debt-service coverage, impair working-capital availability, and create potential lien-priority or receivables-assignment issues. The concern is heightened when the borrower has renewed or stacked similar obligations, used the proceeds for recurring operating expenses, or failed to disclose the financing fully. The risk may be mitigated by complete disclosure, documented one-time use of proceeds, strong historical cash flow, adequate liquidity, payoff at closing, termination of all related UCC filings, and demonstrated ability to operate without additional short-term financing.

These obligations are red flags because they can be both:

• A symptom of an existing financial problem, and
• A source of additional financial pressure.

They may show that the practice has lacked sufficient working capital, and their daily or weekly repayment terms may further reduce the cash available to correct the problem.

A prudent commercial lender will not automatically decline the practice but will make a determination as to:

Why the financing was needed, whether the practice can repay it without renewal, how the payments affect true cash flow, whether another provider has rights in the collateral or receivables, and whether the proposed bank loan will create a sustainable post-closing financial structure.

Vision One Credit Union has been serving private practice optometrists since 1951 reinvesting over $500 million into private practices nationwide.

If you have any questions regarding this information or would like our feedback or assistance in reviewing your agreement, please feel free to contact Ken Ferreira, Chief Executive Officer and certified practice appraiser at kferreira@visionone.org.

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