Eight Things to Look for in a Merchant Cash Advance Provider

Not all merchant cash advance providers are the same. Many providers have gone out of business in recent years, while other vendors have unscrupulous practices. Small businesses must do their homework in order to land the right provider. Choosing the right provider is critical to your strategy of getting financing. With so many providers in the industry, it pays to carefully scrutinize your options. Here are some guidelines to go by:

An Existing Processing Relationship. Look first at the capabilities of your existing processor. Your processor is already linked to your card acceptance process and should have the financial strength to take on the risk of funding small-business merchants.

Minimum Documentation. Using a provider that handles your merchant processing makes the whole process easier. Your merchant processor holds existing processing history documentation, which helps streamline the application process considerably. In this scenario, you should typically only need to provide two months of bank statements, a copy of a lease or mortgage statement, and a driver’s license.

Flexible, Efficient Approval Standards. A strong provider will have not only solid approval standards, but also a higher approval rate than others in the industry. A processor can offer higher efficiencies not found elsewhere. Small merchants, with processing volume ranging as low as $18,000 a year, can tap their existing processor to get funding.

Speed in Funding. Cash advance vendors report taking a few days to two weeks to provide funding, but often it runs on the higher range since they may be dependent on getting financing themselves through their private equity partners. Well-funded partners can provide funding in as little as three to five days. Ask for references to help find out how long it took to get them funding.

Split Funding. The way providers collect funds has often been a challenge for merchants. Agents have complained that cash advance companies have not mastered distribution and support of the product. Often clients are asked to set up joint accounts or lockboxes with the provider, making the process clunky and harder to manage. Split funding, or batch splitting, takes less time and is less risky.

Flexible Repayment. Look for a provider that allows repayment to change according to the ebb and flow of revenues. Repayment should be tied to the performance of the business, so if it has a slow month, it pays a little less; if it has a great month, it pays more. Merchants should not be obligated to pay a certain fixed amount each month, regardless of business flow.

Program Length. Most common merchant cash advance programs range from three to 12 months. Often providers retain the right to collect remaining funds at the end of that period, which can impair cash flow for a small business. Look for a provider that does not set a time limit to the program length, but instead bases collections on processing volume. The provider should offer a wide range of programs to suit varying merchants’ needs and markets.

Financial Strength. Choose a provider that has a long track record working with merchants and knows the processing industry, since knowledge of both is necessary for establishing an efficient program for customers. These providers have the financial wherewithal to get capital in the hands of customers quickly.

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