Thursday, April 10, 2008

Who qualifies for a Merchant Cash Advance?

Many types of businesses easily qualify for a Merchant Cash Advance.
While everybody says about their products, in this case, it is honestly true…we have always had an extremely high percentage of our applicants qualify. Why? Simply put, it is because we are able to evaluate risk differently than other financial providers.

The main requirements of a Merchant Cash Advance applicant are to own a business and to process credit card sales. Each Merchant Cash Advance provider will have additional requirements, usually centered on the business’ operations.

Most small business owners will find the qualifications of a Merchant Cash Advance much easier to meet than the requirements associated with traditional financing options. That’s what small business owners are telling us—that they appreciate less hassle, less paperwork, and the fact that Merchant Cash Advances are more flexible and responsive than traditional options.

So in general, businesses that accept a specified amount of credit and debit card sales are the ones that qualify. This means they might be restaurants, retail shops, florists, spas, salons, dental or medical offices, or any number of small business types. Some will be franchises, some will be multi-unit enterprises and some will be single Mom-and-Pop establishments. It could be almost any business in almost any industry.

What makes a difference?
Like us, most reputable Merchant Cash Advance providers will review some measurable variables that tell them more about you and how your business works.

Common things for most providers (including us) to review are the time in business, current status with a landlord, the average credit card activity for 4-12 months, and the status of other current financial obligations. These variables, in large part, determine the specifics of each deal.

Does my credit score matter?
The short answer is yes, your credit score always matters. The better your credit score is, the wider the range of financial opportunities offered to you and your business. But read on.

With a Merchant Cash Advance, your credit score will matter significantly less than it would if you were to apply for a loan. It is one characteristic of a Merchant Cash Advance that many business owners have said that they really appreciate. We have approved merchants with credit scores as low as 411, and a significant percentage of our merchants have credit scores greater than 650.

Does this mean everyone who applies gets approved? No. But many who do apply will get approved…and almost all of these qualified applicants will have less than perfect credit scores.

While the credit score of each applicant is reviewed as part of our process, it is not very often going to be the sole hurdle. We have helped lots of people with bad credit scores and lots of people with good credit scores. We handle each case on an individual basis. Our ability to analyze and assess the unique risks of each specific application allows us to look beyond a credit score.

Still have questions? Just ask.
The key to making better business decisions is to know all you can about your opportunities. This forum is designed to help you understand all you can about a Merchant Cash Advance, and help you determine if this is a financial option that makes sense for your small business.

If we haven’t addressed your own questions yet, feel free to send them on.
Previous posts have covered What a Merchant Cash Advance is, How a Merchant Cash Advance works, which contains an illustration of a Merchant Cash Advance.


Paul said...

Does a loan differ from a merchant cash advance in thay loans require personal guarantees and collateral or security, while a merchant cash advance does not ?

The AdvanceMe Team said...

Strictly speaking, the answer to your question the way it is phrased is “no.” But let us try a re-phrasing: “What are some of the differences between a Merchant Cash Advance (MCA) and a Loan?”

An MCA involves the sale of an asset – a portion of a merchant’s future credit card receivables (CCRs). At the time the MCA is funded, the MCA provider does not know when or how fast the merchant’s future CCRs will be created, so they don’t know when they will receive the money from the CCRs they bought. MCAs have no fixed payment schedule where you pay a single certain amount every month or so nor do they have maturity dates – loans have both. Also, because the provider purchased a fixed amount of future CCRs, and they don’t know when they will collect them, it is impossible to calculate an interest rate on an MCA.

Loans have interest rates. Loans also often require collateral that the lender can look to if they don’t receive payment. Because MCAs are true sales of future CCRs, collateral cannot be pledged to secure the delivery or payment of such future CCRs.

Loans sometimes require personal guarantees of repayment, which the lender can employ to collect the loan from the guarantor if the borrower goes out of business, or fails to pay for some other reason (guarantees are usually pretty specific as to when they can be employed).

MCAs, again because there is a true sale of the future CCRs, can’t employ personal guarantees of payment of the future CCRs. However, and this is important, MCA agreements have multiple covenants concerning how the business is owned and operated, and often require that someone guarantees the business will perform those covenants until the purchased CCRs are realized. Basically, this means that if the business honors the covenants of the MCA agreement, but goes out of business anyway, the MCA provider loses money -- but if the MCA agreement covenants are breached, then the MCA provider can pursue the guarantor for the value of the future CCRs the provider has lost.

There are various other aspects of MCAs that differ from loans, but we’ll wait until those questions are asked and answer them in specific contexts as they arise.

Hope this was helpful and responsive to your question.