Merchant Cash Advance Article In The Green Sheet

Yes another article regarding selling a merchant cash advance appeared in the recent issue of The Green Sheet. Mike Evans, a Sales Manager from 2nd Source Funding in New York, wrote an article entitled Use rapport to score with cash advance. (Editor's note: Second Source Funding is a broker / sales agent for several merchant cash advance companies. I believe they also offer merchant fundings / business cash advances under the name Tribul Cash and BPS (Business Payment Systems) also based out of New York City.)

Mike points out several things that I've mentioned previously back in September, namely how former mortgage brokers are getting into the merchant cash advance business (see my previous blog entry - Invasion of the Subprime Mortgage Brokers).

I agree with what Michael is saying for the most part about how merchants are being inundated with merchant cash advance offers. The one interesting item he indicated is the average merchant cash advance factor rate is 1.38. My personal opinion, any merchant that is paying 1.38 for a cash advance can find the money less expensive for around 1.35 (which can add up to signficant savings to the merchant as the advance gets larger).

Merchant Cash Advance Companies Tightening Up

I keep hearing more and more people talking about how merchant cash advance providers are tightening up their credit criteria and eliminating certain industries that they will no longer provide working capital to. I predicted this would happen months ago, it's the same old story, you can't stay in business funding bad deals. My next prediction, the sales commissions being paid out currently will go down. As many cash advance companies mature and review their financials / profitability they will see they can not turn a profit by funding this type of merchant and paying out the level of commissions that they have been. I've already seen in the marketplace several merchant cash advance companies telling agents/ISO/resellers that they no longer want their business and/or lowering their commissions.

Merchant Cash Advance For $1 Million?

Merchant Cash Advances historically have maxed out in the range up to $150,000 - $200,000 per location, with the average amount being $20,000 - $25,000. There are a handful of companies now that are targeting a new market of $150,000 - $1 million+. These transactions are being structured more like a loan product, with closing fees and at a cost to the merchant comparable to hard money lenders. The credit criteria is much more stringent than a traditional merchant cash advance as the cost is lower. Sales agents shouldn't get excited too quickly, the commissions are typically much lower as well with this large advance product at a lower cost. The commission on a $1 million merchant loan product can be the same as a $200,000 traditional merchant cash advance. Providers of these high volume loans are betting that the bad debt will be lower because the cost is lower and the credit criteria is higher. Are they correct? They jury is still out and it will be interesting to see how this model evolves.