While it may be a nuisance for merchants that their merchant cash advance lender changes the advanced amount on them, even after contracts are signed, they must be aware that this type of financing is not a traditional bank loan.
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!