Merchant cash advances (MCAs) have redefined how lending is done in the modern times. Traditional lenders had frustrated the efforts of most of the small business owners who direly needed financial aid. Because of this, MCA providers have come to their rescue with prompt and reliable lending services. Considering the large number of small businesses that might be seeking for alternative lenders particularly cash advance direct lenders, individual sales organizations (ISOs) have a huge role to play in linking the two together.
To be an effective broker, an ISO needs to be well grounded in the various aspects of the provision of MCA loans. This article is meant to expound on the important areas that will enable ISOs to efficiently communicate with small businesses looking for cash advance direct lenders. Knowing the basic facts that would be outlined in this article will enable you as an ISO to not only state the requirements to the prospective clients, but to also appreciate the essence of doing this.
What an MCA Loan is
Alternative loans include MCA loans, asset-based loans, loans on future receivables and loans for startups. An MCA loan is basically a lump sum that is provided to small business owners as an investment on their future credit sales. The cash advance direct lenders usually offer these loans in a prompt fashion to the needy businesses which meet their qualification criteria. Your role as an ISO is to connect the MCA providers who underwrite these deals with small businesses who are seeking for financial aid to meet their working capital needs.
MCA loans are unique as they are offered with the revenue of a business being viewed as their security. For this reason, most if not all of the cash advance direct lenders will have to assess the revenue base of a small businesses seeking for an MCA loan to determine if they will be able to sustain the repayment schedules. As a matter of fact, MCA providers don’t ask for collateral during the application process, the revenue of a business caters for this.
The requirements a small business owner has to meet
The search for clients is not a hard task but filtering the suitable ones has to be done right to avoid disappointments. Cash advance direct lenders usually deal with relatively established businesses; small businesses that have been operating for more than a year. Besides being established, it is required that the small business owners you recommend to MCA providers accept credit or debit cards. Here are some few and reasonable requirements during the loan application:
- The provision of the small business’s financial statement
- A copy of their estimated credit sales in the near future
- A copy of their recent past credit sales
It is good to mention that no form of collateral is needed during the MCA loan application process. Cash advance direct lenders are also free to offer their services to businesses with a bad debt history. As long as a business can generate at least $10,000 on a monthly basis they are good to go; this is taken as a guarantee that they can be able to sustain the repayment schedule.
About the repayment schedule
After meeting the requirements, it takes a matter of days for the loan to be approved. This is way better compared to the long and tiring wait that is characteristic of the traditional lenders. After about 3 days and in some cases as short as a day, a business owner can receive the advance from the cash advance direct lenders.
The repayment schedule has to be agreed on between the MCA provider and the small business owner, an ISO needs to make sure their client is comfortable with the repayment period and the interest rates charged. For most of the MCA loans, the repayment period would range from 3 months to as long as 12 months.During this time, the small business owner would have to remit a fixed percentage of their daily credit sales. The rate is relatively the same for most of the cash advance direct lenders but their cumulative interest is higher compared to the other loan options. This repayment period is expensive in the long run but it is a sustainable model and the return on investment can work to the advantage of the small business owner.
A fixed percentage of the daily credit sales being deducted for the repayment is preferable since the business will be left with enough cash to cater to their working capital needs. On days with low credit sales, smaller amounts will be deducted while higher amounts will be deducted on days with higher sales volume. This implies that on any given day your client will be left with some amount to meet their needs.
The vital role of ISOs in facilitating MCA loan Provision
As an ISO, your role in brokering the deals is what has been responsible for the growth that has been witnessed in the lending world. These roles include:
Verify how credible the respective parties are: It is important that small businesses are linked to cash advance direct lenders of unquestionable character. They need to access MCA services from providers with a proven record in being reliable and prompt. The clients also need to be businesses which meet the expected requirements for them to qualify for the MCA loans.
Oversee all the transactions: For all the transactions that have to be done between the cash advance direct lenders and the small businesses, ISOs have a role of facilitating this. Their role in making sure everyone is satisfied and not being short-changed cannot be downplayed. After facilitating these transactions, they will then receive a generous commission for their services.
The maintenance of a secure communication channel: Brokers usually initiate the conversation between the various parties. For this reason, ISOs are tasked with ensuring that an effective and efficient communication channel is established between the MCA provider and the small businesses. They will, first of all, get in touch with interested parties and outline the conditions and thereafter communicate with the appropriate cash advance direct lenders.
During all this, independent sales organizations usually do not incur any expense as all the costs are met by the MCA companies. With advancement in technology and the utilization of the cloud, deals can be brokered over the internet. This has enabled businesses to be served from any location just by accessing the internet.
Benefits of MCAs Issued to Small Businesses
Having considered what MCA loans are all about and your key role as ISO, it is good to briefly look at how MCA loans are beneficial to the small businesses. This could help to elaborate on the immense popularity and following that MCAs have gained in the recent past. Here are some of the key benefits of MCA loans that cash advance direct lenders provide:
- A quick way of meeting their working capital needs; small businesses are usually faced with a shortage of the necessary working capital from time to time and they need a lender who is prompt enough. Since most of the MCA providers usually take a day or a few days to approve and provide the cash advance, most of the small businesses tend to prefer them over the traditional lenders.
- No form of collateral is needed during the application process; a small business that you recommend to the cash advance direct lenders doesn’t need to provide any form of collateral to act as security in case they default on repaying the MCA loan. The assessment of their revenue base is usually taken to be an assurance that they will service the loan in time.
- They have a favorable repayment model; the idea of the small business owner remitting a fixed percentage of their daily credit sales to the MCA providers is quite sustainable. Though this is cumulatively expensive in the long run, the business will be left with enough cash to meet their working capital needs in the following days. Contrary to the traditional lenders who don’t take into consideration the performance of a business, cash advance direct lenders don’t demand fixed amounts on a monthly basis. This implies that the small business owner will have an easy time in repaying the loan.
- They are accommodative to the businesses with a bad debt history; businesses with a history of bad debts can freely and hopefully apply for MCA loans. The main consideration is their revenue base in the recent times. If they can sustain the repayment period, most of the cash advance direct lenders will be willing to provide them with the cash that they direly need.
- Few requirements are needed; unlike the traditional lenders who had many requirements and rules, MCA providers just need a few documents to determine the suitability of a given small business. As alluded to earlier in the article, no form of collateral is needed making this a preferable option.
Independent sales organizations are a vital bridge between the cash advance direct lenders and small businesses sourcing for MCA loans. The prompt and reliable nature of this form of alternative lending has increased the client base of most of the ISOs. It is thus easier to find and link up clients to the appropriate MCA providers for great commissions.