Business Credit & Capital No Comments
Photo Credit: Simon Cunningham

Photo Credit: Simon Cunningham

There may come a time when a merchant needs to expand or upgrade their business. The customer base has increased or they need to improve their technology to remain competitive. The merchant may not have a a large amount of funds available to make such a substantial investment. The regular cash flow will enable them to take a cash advance to meet their needs. They can obtain a merchant cash advance. According to an article in Businessweek, growth in the merchant cash advance industry is expected to exceed $10 billion annually.

Merchant Cash Advance
A merchant cash advance (MCA) enables a merchant to sell a specified percentage of their company’s future credit card sales. They are able to receive the funds and begin using them quickly. There are three different ways to obtain an MCA.

Direct Funding
This is a way for a source to provide funds directly to a merchant without any third party involved. This could decrease any additional fees involved with receiving the money. Many direct funding companies do a good job. The problem is that some do not make public their requirements for funding. A merchant could waste valuable time waiting for their approval process, only to get a negative result. In many cases, a direct funder will pay their sales staff a commission. This will not give the sales staff any incentive to provide the best rates possible.

Independent Sales Organization
A merchant can also obtain funding from an independent sales organization (ISO). This is a broker for merchant cash advances. They have developed relationships with direct funders. This enables them to know which ones provide the best services. These brokers are able to save a merchant time. An ISO can provide information about a direct funder who would most be able to help a merchant.

Lead Company
When a company looks for an MCA, they can utilize the services of a lead company. These organizations are designed to provide a merchant up to four quotes or more for an MCA. The company must fill out some basic information to begin the process. A lead company will make their money by providing the merchant’s information to an ISO or direct funder. This could take a merchant more time. They will have to review many different quotes and compare benefits prior to making any decisions.

Split Withholding Repayment
During this repayment agreement, a credit card processing company will forward the agreed upon amount of a company’s credit card sales to the MCA company for repayment. This is popular with both merchants and MCAs.

Lock Box or Trust Account
This is when all of a company’s credit card sales are put into a bank account handled by the finance company. The agreed upon percentage of the funds is kept by the MCA and the rest is forwarded to the merchant. This is not a popular repayment method. The funds for a business can be delayed for up to a day.

ACH Withholding
This repayment method consists of a finance company obtaining credit card sales information from a business. They are then able to deduct their agreed upon percentage directly from a company’s bank account. This is also not popular. A specific amount of money is deducted from a merchant’s account every day. The amount of sales activity does not matter. The same amount is deducted daily.

Brokers
Technology is able to provide a quick and easy way for merchants to contact an MCA company. In many cases, merchants are able to negotiate their own MCA deal. The problem is that technology can’t provide the same level of personal service as a broker. Brokers will always be able to provide a higher level of understanding than technology. They can listen and understand a merchant’s situation. A broker can then use their knowledge and experience to provide a merchant with the best possible deal. The future may see more advances in technology. Brokers will always be an important part of the MCA industry.

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