how to start a merchant cash advance business

How to Start a Merchant Cash Advance Business

When it comes to talking about obscure areas of how-to, how to start a merchant cash advance business may be one that takes the mantle, for now.

BUT

When it comes to starting a new business, I can talk about finance till the cows come home. Starting a merchant cash advance business? Easy pickings.

First up though…

Table of Contents

What is a Merchant Cash Advance Business?

In short, a merchant cash advance business is one that arranges a form of alternative finance for a business, using the revenues from their ‘merchant’ card terminal. There’s a lot of lenders out there who offer that, including Paypal, who were one of the first, but it’s a manageable way to borrow funds to maintain or grow a business.

Paypal’s system known as ‘Paypal Working Capital‘ worked by establishing a lending sum based on your sales revenue that took into account a sense of affordability. That sum would be paid back in percentage terms on your revenue. It’s a great way for any business to access finance, particularly at the start-up level.

But they aren’t the only providers of this, they just moved quickly.

Not sure if there is money in this?

In the US alone by 2019, the BPC’s estimates, the MCA industry will have more than doubled its small business funding to $19.2 billion

Debanked.com

The beauty of this in the UK, was that it was backed in most cases by the British Business Bank. A government scheme that protected the lenders. This made for a good business incubation environment. And something that lenders were keen to get involved in.

Lending for start-ups and SMEs is notoriously difficult in recent history. Therefore the emergence of the merchant cash advance approach has opened up opportunities, for many smaller companies, that would otherwise not be possible.

What is the Merchant Cash Advance Business Model?

If you are looking at how to start a merchant cash advance business, knowing the business model is probably quite important for you.

So let’s break it down in simple terms. We are going to assume in this scenario, you are merely arranging the finance as opposed to being the lender. That process requires you to become a regulated financial institution in most of the world.

The most common method is to act as an agent or broker.

Step 1 | Approach PDQ Funding Lenders or Card Terminal Provider

Step 1 if you were looking for a merchant cash advance is to approach either the company you have your card terminal with, or google for a PDQ funding company such as Paypal, Liberis etc.

From here, they would ask for a detailed breakdown of your card receipts, perhaps your last year’s accounts and generally make available lending for the equivalent of a month’s card receipts. This means between 8-10% of your annual revenues.

The agent of broker would have a number of approved lenders who they would approach and source one willing to make a lending proposal based on the company’s information

Step 2 | MCA Broker finds Lenders

At the stage of getting information from a business who want to take an MCA, if you were an agent or a broker you would now present this information to a lending panel who would state their interest and their offer.

Typically repayment is around 6-12 months although some do longer. Depending on the speed of repayment, the loan interest figure will vary either favourably or less so to the borrower.

Within this repayment figure will be an introduction commission that would be paid out by the lender. Some MCA companies will also charge for arrangement or admin fees on the borrower side too.

How much that arrangement fee will be, may depend on the type of borrower and the work that goes into securing finance on those types of businesses. Businesses in high-risk categories such as adult or restricted products can have reduced options and will be more likely to be open to paying such a fee.

Step 3 | Present Proposal to Borrower

The agent (possibly you) will put forward the available deal to the borrower and if they accept, they will now need to provide the required proof of identity, business documents and so forth, to ensure the lender knows the customer to a legal standard.

If the borrower accepts, then we hit pay dirt.

Step 4 | Pay Dirt

Once the lender approves the sum and the borrower has cleared a few paperwork hurdles, they will receive funds and so will you – the broker.

That’s in a nutshell the MCA business model you need to know if you want to learn how to start a merchant cash advance business.

Follow up with the borrower and toward the end, you can always see if they want to repeat the process, which means another commission.

What are the benefits of the Merchant Cash Advance business?

For a broker

Little initial costs beyond marketing, a website, some personalised emails and someone to power the phones. It’s largely a human capital based business and there is in truth no liability beyond that.

It’s a business that can be entered into in a number of ways. For example, you may be a blogger who writes about ways to grow your business. You could loop in the use of a merchant cash advance to finance that work and offer a link to an approved lender.

This is the affiliate marketing model and done right, is tremendously effective.

If that’s not your thing, you could produce landing pages and run PPC ads. PPC – or pay per click when done right is a tap to generate leads. It’s not always done well though. If you are already in the business and want to know why your ads are leading you to not getting sales, here’s a comprehensive guide I put together on this:

Benefits of a Merchant Cash Advance For the Borrower?

When it comes to seeing what benefits there are for a merchant cash advance they are pretty straightforward. Let’s nail those right now.

  • No Personal Guarantee
  • Affordable linked to your revenue
  • No time limit to pay
  • Easy to arrange

It is pretty easy to arrange these, simply because they relate to fairly manageable sums that your current revenues show. So if you are looking for a lending solution linked to your business earnings, that don’t require you to hand over the keys to your house, if you go bust – then merchant advance lending has it’s upsides.

What are the downsides

Okay, so let’s look at the negatives.

  • Relatively expensive lending considering the sums and the risk
  • Usually quite quick repayment which means your cashflow can be restricted if the funds aren’t used to grow revenues

Other than that, there is not really too much to knock them. It’s why so many small businesses use them and the industry has grown quickly. If you are looking at how to start a merchant cash advance business, then it’s good to know the pitch is easy.

What do I need to get started?

Like any sales based business that can be done online, it doesn’t require a huge setup cost, and pretty limited resources. You are not actually lending the money, but simply acting as a lead generator for businesses who do.

To get up and running, you will need the following tools:

  • A website – well written, clear and SEO friendly
  • A small marketing budget for ad spend
  • A vanity telephone number. Essentially a landline your phone forwards to
  • Some simple branding
  • Knowledge
  • An affiliate connection to pass on the leads to

There is more to it than this, but these really are the basic tools you will need. It’s not a huge bar to get over and as business ideas go, I’m thinking I may as well put this post to bed and just start myself. If you have worked in a telephone or a consultative environment, this kind of work will be an easy transition.

How does an Alternative Business Funding Agent Collect Payments

So the beauty of this entire model, is you don’t need to. The key takeaway from our how to start a merchant cash advance business is that you are essentially a marketer. With none of your own collateral at risk, it’s just the time you commit that you are investing.

When a deal is done, you will either invoice the lender or they will pay out based on your pre-agreed system

Alternative Business Funding Marketing

The main way you will win business in this era is going to be online. You can of course go fully old school and work an offline network, door to door and simply press the flesh, but you will get a broader reach and faster using SEO, content marketing and paid ads.

Where do I get leads from?

With a world of search engines and many ways people explore for answers you can be smart and source leads in a very cost effective way.

Once you begin to run ads, you will need to craft an attractive landing page on your site that then converts inbound visitors into leads. Those leads you may call, or you may work on email automated factory line system. Whatever works best for you.

And be adaptable. What works one year may lessen over time. The art of knowing how to start a merchant cash advance business, is also the art of clever marketing. From here is where you will get your leads and eventually your earnings from.

None of this – I need a Merchant Cash Advance

If you are looking for a merchant cash advance, then our suggestion is to head over to the Merchant Loan Advance company here: ‘Get Funding For Your Business.’

Other Topics you may want to explore next:

What is it like being a Merchant Cash Advance Broker

Where can I get Merchant Cash Advance Training

Merchant Cash Advance Business vs Franchise

What is the best Merchant Cash Advance Franchise Model

2 thoughts on “How to Start a Merchant Cash Advance Business”

  1. Mason, what are the chances of an MCA lender to work with a MCA broker that they do not know well, on a large MCA deal like $250k for 5 months with a a payback of $360k plus $22k funding fee)?

    Would and MCA company just take the deal from the broker that they have no idea who it is or their history on this volume of a deal?

    1. Ultimately it’s the Lender dealing with the risk of the Borrower, the broker is just the marketing guy/girl.

      So providing you have an agency agreement set up to make sure you get paid out for the introduction the borrowing level is really just down to how much revenue the borrower is producing and how long they have done that for.

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