The demand for alternative lenders has hit a record high in the recent years. Of all the forms of alternative lending, Merchant Cash Advances (MCA) seems to be the favorable and most preferred option for many small businesses. The role of Independent Sales Organizations (ISO) in linking small businesses seeking MCAs and the MCA providers who underwrite the deals cannot be downplayed. To be effective as an ISO you need to take into consideration a couple of issues which are related to MCAs. A good knowledge of this form of alternative lending will enable you to effectively and efficiently convince as many clients as possible to consider direct lenders online. You need more than just the regurgitation of the requirements and rules in this form of alternative lending. Read on to discover more…
What is a merchant cash advance?
There are a number of alternative lending options and merchant cash advances are a unique group among these. A merchant cash advance is a loan offered by an MCA provider to a business and it has to be repaid through a fixed percentage of their daily credit sales. It is basically an advance that is offered as an investment on the future credit sales of a given business. The revenue that a business can generate from their credit sales is what the direct lenders online will deem as security for the MCAs they provide. Unlike the traditional loans, no form of collateral is required and small businesses with a history of bad debts could apply for MCA loans providing valuable direct lenders for bad credit loans options.
ISOs usually act as the brokers in connecting small businesses seeking financial assistance from MCA providers, with the relevant direct lenders online. They create a vital bridge for a commission which is based on the interest charged on the MCA loans to be provided.
Requirements needed before provision of MCAs
Traditional lenders had strict and strenuous application procedures for small businesses which urgently needed loans. MCA providers, on the other hand, are characterized by simple and reasonable requirements for a business to qualify for an MCA loan. Since the loan is to be repaid based on the daily credit sales, the business ought to accept credit or debit cards for most of their transactions. Besides this, a small business additionally needs to:
- Have at least a one year experience in business, relatively established; most if not all of the MCA providers don’t offer their services to startups.
- Be able to generate at least $10,000 in terms of revenue on a monthly basis
For the MCA Loan application
As mentioned above the application process is simple and quite straightforward for an MCA loan. A small business owner needs to provide a couple of documents which will be used to assess their eligibility for MCA loan provision; basically the amount of revenue they are be able to generate on a regular basis.
The client’s ISOs refer to the direct lenders online will have to provide:
- A financial statement of their business
- A copy of their credit sales history in the recent past
- Their projected credit sales in the near future
Such information will give the MCA provider an assurance that the business is able to sustain the repayment period. It is good to add that MCA providers don’t ask for collateral during the loan application process and businesses with bad debts are free to apply for MCA loans.
Advancement in technology and its adoption by many direct lenders online has further simplified the loan application process for the small businesses. ISOs don’t have to be physically present for a deal to be brokered as the internet can breach this gap. Small businesses can now apply for MCA loans from any location just at the click of a button.
The Repayment Schedule
The approval and disbursement of an MCA loan takes a few days only. Small businesses do not need to wait for months when dealing with direct lenders online in comparison to the traditional lenders. Most of the MCA loans are usually processed and approved within 3 to 5 days and there are some who approve and provide the loan in just a day. The repayment periods usually last for as short as 3 months to as long as 12 months depending on the agreement between the clients and the MCA providers.
During this time, a fixed percentage of the daily credit sales will be deducted to repay the loan. The cumulative interest rate after the repayment is relatively higher compared to other loans, both the traditional and the other forms of alternative loans. Despite MCA loans being expensive to the small businesses, higher returns on investment can be accrued using them. The fixed percentage that is deducted on a daily basis ensures that the business is left with enough cash to meet its working capital needs; days with higher credit sales volumes will see the business part with larger amounts compared to days with lower sales.
Advantages of MCA For Clients That Your Connect to Direct Lenders Online
For the MCA loans to garner such a massive following in the lending world there has to be a reason/s for this. Some of the benefits that come with the MCA loans that direct lenders online provide include:
- The prompt nature of their approval and disbursement; many of the small businesses usually need financial aid to meet their working capital needs. Others would like to capitalize on a recently identified market niche with no delays. Given that the approval and disbursement of MCA loans usually takes a matter of days, this form of alternative lending suits them best.
- They have a sustainable repayment schedule: the clients you intend to recommend to direct lenders online need to understand and appreciate the repayment schedule of MCA loans. Considering that a fixed percentage of the daily credit sales are deducted to repay the loan, the business will always be left with enough cash to meet their working capital needs. This is better compared to other lenders who may need a small business owner to remit a specific set amount on a regular basis regardless of how their business performs.
III. Reasonable and minimum requirements; provided a business accepts credit and debit cards and it has been in business for more than a year, the other requirements are less and easily attainable. What is more is that with the availability of direct online lenders a small business owner could submit this from any location provided they have access to an internet connection.
- No need for collateral: unlike the traditional lenders, MCA providers you will recommend to clients as ISOs don’t have to provide any form of collateral during the loan application process. The direct online lenders usually treat the revenue of an interested client as the security for their loans. This explains the insistence on a business being established and the assessment of their revenue base. All this is usually done to determine whether a client can sustain the repayment schedule while their business is afloat.
- Bad credit businesses are welcome: nothing makes most of the lenders to freak out like a small business with a history of bad debts. Contrary to this general feel about bad debts, MCA providers are willing to provide such businesses with financial assistance as the need arises.
The major challenge that is associated with the merchant cash advances is their expensive nature. But their availability in a timely fashion coupled with their sustainable repayment schedule could see the small businesses maximizing their productivity to offset their huge cost. Startups and less established businesses are legible to the MCA loans. This could be explained by their revenue base which could be less or unpredictable.
The Role of Independent Sales Organizations in MCA Provision
Having looked at key aspects of merchant cash advances as a form of alternative lending, it will be best if an overview of the role of ISOs is considered. Here are some of their critical roles:
- ISOs usually establish the credibility of the various parties: due to their vast connection, their sole role is to verify whether the direct lenders online are reliable before connecting them with their prospective clients.
- Establish an effective communication channel: striking a deal requires that a buyer creates an appropriate environment where the MCA providers can explain their services to small businesses that need to express their views on this. The conversation between the direct online lenders and the small businesses seeking for MCA loans is usually sparked off by the ISOs.
- Undertake all the transactions: after a deal has been made, all the transactions are usually done by the ISOs on behalf of both the lender and the debtor. Their role is to ensure that all the parties get their share while the ISO retains their commission on the deal.
Merchant cash advances will be demanded even more in the future and you need to get it right as an independent sales organization. Immense opportunities exist and effective communication between the direct lenders online and their prospective clients is critical if you want to increase your earnings.