and retail busienssess traditionally have a difficult time obtaining a bank loan.  However, they can qualify for a merchant cash advance.  Here are 10 easy tips to help small business owners know if they qualify for a merchant cash advance.

1. Own a business – You must own a business in order to qualify for a merchant cash advance.  Most lenders require that you have been in business for at least 6 months.  Startups do not qualify!
2. Accept Visa/MasterCard as a form of payment. – A lender will advance a business owner an amount of money against his future credit card receivables.  The lender will collect the money back by taking a percentage of the future credit card sales.  In order to qualify for a cash advance the merchant must process Visa/Mastercard and usually process at least $5,000 a month.
3. Discharged bankruptcies – Most lenders want to see that the merchant has no open bankruptcies, and if he has been in a bankruptcy, that he has been out of it for at least one year.
4. Current with Rent – Perhaps the most important reference a lender will check is the landlord/mortgage.  Some companies will pay for merchants who are behind 1 month in rent.
5. Above 500 personal credit – While a business cash advance is an unsecured loan, and personal credit does not play a large role, if your credit is sub-500 then you probably will not qualify for a traditional loan.  You may qualify for a starter program.
6. Accept methods of payback. – There are only three ways a lender can collect the percentage of Visa/MasterCard sales.  a) split funding b) ACH c) Lockbox.  There are no other ways, and you may not qualify for one or two of them.
7. Tax Lien Payments – Lenders want to see that you are on some sort of payment plan for tax liens.  If you have a lien you can still qualify, but you need to be current with payments.
8. Franchise and Royalty Fees – Merchants must be current with their franchise and royalty fees.
9. Paperwork – Be able to provide the lender with 3 months most recent bank statements and at least the last 4 months merchant processing statements.  This may very with every lender and on seasonal businesses
10. Be Friendly! – Character believe it or not plays a large role whether or not you obtain a cash advance.  All lenders will conduct a merchant interview and it certainly helps to be friendly and cooperative.  If you are rude, they probably won’t fund you.

While this type of funding is generally more expensive than a traditional bank loan, it is much easier to obtain. Furthermore it is an unsecured loan which means that there is no collateral involved. Personal credit and business credit do not generally play a role in obtaining the advance, nor do merchants have to be in business for over three years. Merchants can expect to pay generally anywhere from a 1.35 factor to a 1.48 factor on their advance.

To learn more about factoring and more about merchant cash advances click here!

To learn more about personal credit, and business credit then click here!

they are private investors who are looking to invest their money on short lending programs.  Any reasonable merchant will understand that in order to receive money, there is going to be some paperwork that merchant’s will be required to dig up in order for this funding to go through.

Many merchants who receive funding from private lenders have additional problems with their businesses including tax liens, open collection accounts, and late payments on rent and venders.  These are all definite deal breakers with banks.  Our advice to merchants is to provide the merchant cash advance lender with the proper full documentation that they request.  It makes the process much longer when random pages are sent in.  In the end, the lender will need at least, full bank statements, and full processing statements in order to fund the business, so merchants might as well submit the documents in a organized fashion.  Lenders understand that merchants are also busy running their business, but they can’t possibly fund a deal without the required documentation.

To submit your information to a top lender click here!

In the rare case that a retail or restaurant merchant actually does qualify for a traditional bank loan it takes weeks, if not months, for the funding to actually occur.  During this process the bank is constantly collecting information on the merchant, and building up a large file so that it can make a very accurate assessment of how much money the bank can lend, at what rates, and how fast the bank will get paid back.  During this processes they also analyze the amount of risk that is involved with funding the business.

A merchant cash advance is a quick alternative to this method of funding.  With that, merchants must understand that the private lender is taking an enormous amount of risk on his end to advance the money.  He is advancing money based on a small amount of information.  For this reason, the amount of money actually funded can fluctuate during the underwriting processes, and merchants should not be surprised when this happens.  In addition, sometimes merchants may be working with a broker who will submit the information to two or three different lenders.  One lender might approve the business for an amount of money and then a few days later “kill the deal,” before it is funded because of certain aspects about the merchant’s business that he didn’t like.  Another lender may pick up that deal, qualify the merchant for a different amount of money and fund it at similar or different rates.

For an in-depth discussion about the difference between brokers and lenders click here!

Historically merchant cash advance lenders have had the most problems with home based and online businesses. Unlike restaurants and retail locations who are locked into leases or paying a mortgage, home based and online businesses can close down their operation without as much difficulty as businesses with store fronts. This isn’t to say that online businesses and home based businesses aren’t eligible for merchant cash advances. There are lenders out there who specialize in these industries, but merchants must be aware that there is simply more risk in providing funding for these business types. For a list of the top merchant cash advance lenders click here!

The merchant cash advance industry has expanded to many types of businesses that typically were not eligible and now are, but many of the industries which were once easily funded are now finding it increasingly difficult to find funding from merchant cash advance companies. The most recent recession has had a toll on small to medium size businesses, and many turned belly up. Some of these industries suffered as a result of the crashing housing market, or because consumers didn’t have the money this year to spend on luxury items. Many that are making it through the recession are also finding it increasingly difficult to stay afloat, and have been seeking help from banks and merchant cash advance companies. But some industries have historically performed poorly when taking out a merchant cash advance. Below is a list of industries that will find it more difficult to obtain a merchant cash advance. This list is not set in stone, and many times there are exceptions, but it is to act more as a guideline for merchants who are applying for a merchant cash advance. To find a top lender click here!

Jewelry
Upholstery
Furniture
Automobile Dealerships
Landscaping
Cell Phones
Travel Agencies
Plumbing
Tile

As far as brokers, there are really two different types of broker’s.  There are broker houses which have good relationships with multiple lenders who also put up a portion of their own money on deals, and there are 2^nd tier broker’s who sell merchant cash advances by submitting deals to many different 1^st tier broker houses.

In general merchants should avoid 2^nd tier brokers as they simply submit your information to many different 1^st tier broker’s who submit your information to multiple lenders.  Due to the many inquiries into your credit, this lowers your credit rating and from an underwriting standpoint this could harm your chances of getting funding.

However, it may be a good idea to submit your deal to a 1^st tier broker as they have special relations with multiple lenders, and may be able to get you better pricing then if you were to simply contact the direct lender yourself.  Many times these brokers put up a portion of your funding with their own funds, so it is definitely in their best interest to get you funded.  1^st tier brokers will usually charge you a fee for finding you the money and underwriting your file, but in the end it works out to your advantage as their pricing can be more competitive.  For our list of the most reputable lenders in the industry click here!

The response of course is, “Well, that depends.”  Let’s look over what a merchant cash advance is.

A merchant cash advance is a true sale.  It is not a loan because the private lender is purchasing a commodity that a merchant is selling, his future credit card receivables, for a monetary amount.  The investors purchase the future credit card sales at a discounted rate today.  The lender makes his return on the investment by collecting a percentage of the credit card receivables over a period of months until that amount is paid back.

Here are five points to consider about this form of business financing:

1)      This form of funding is available to many merchants who would not otherwise qualify for a traditional bank loan due to credit, past bankruptcies, or just because of industry type.

2)      A merchant cash advance is an unsecured loan.  Because it is private lending and not a bank loan, there is no personal or business collateral involved.  If the merchant’s business goes under, then the investor simply lost the investment.

3)      It is a factoring program – non interest collecting.  The merchant and the private lender agree on a set price for the cost of the credit card receivables.  Because of this risky form of lending, most lenders tailor their programs between six to nine months (although there are exceptions).  The lender predicts what the merchant will be processing in the future based on past statements and will build a program tailored for each merchant’s business.  The lender is taking a percentage of future credit card receivables until the advance is paid back, and thus if the merchant is running slow on the predicted payment, then the lender simply gets paid back slower, without interest collecting on the advance.  Obviously there are major benefits to this as many merchants and individuals fall behind on credit cards and loans and end up paying enormous amounts of money just in interest.

4)      There are no late fees incurred because the lender’s payments are taken automatically from the merchant’s credit card receivables when he batches out of his machine.

5)      The merchant cash advance does not affect the credit report.  Most lending companies file a UCC against the merchant’s business simply to let other lenders know that they own a percentage of the future credit card sales.  If the merchant wants another advance, that lender must be paid off first.

“Yes, but the interest rate is too high.”

Merchant’s must remember that this is not an interest program, but a factoring one.  The merchant is paying a fixed amount for the advance.  There is no payment schedule, late fees, or interest collecting on the advance.  Undoubtedly, a merchant cash advance is more expensive than a traditional bank loan.  But if a merchant doesn’t qualify, or isn’t willing to put his personal property or other assets on the line, than a merchant cash advance is a method of business financing to consider.

To learn more about what the process of obtaining a merchant cash advance entails click here!