For the next three days, I will be presenting an exciting series on how to sell merchant cash advances. Today, I want to give you an introduction on cash advances, so you understand what they are, why merchants use them, and how they work.

What is a merchant cash advance? Let’s just say you own a restaurant. This restaurant processes $20,000 a month in credit card transactions through their credit card terminal for at least 6 months. In order to be considered for a cash advance, a business must have 6 months of credit card processing statements and be in business for at least a year. With this steady credit card volume, we can assume that the $20,000 a month will continue. Businesses who need to get capital for their business quickly will not be able to go to a traditional bank because the bank will take up to 60 to 90 days if even approved.  They may be denied because of poor personal credit, lack of time in business, or cash flow restraints. A cash advance fills that gap between when you can’t get a bank loan, but you need that money.


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A cash advance company keeps a percentage of your credit card volume that goes through your terminal.  For example, we are doing a $10,000 cash advance for a business that processes $10,000 a month in credit card volume. They need this money NOW. We wire them $10,000 with no personal guarantee. What cash advance companies look for is that they must be in business for a whole year and 6 months of credit card statements to see what their credit card volume traditionally is. Now, the $10,000 we wire to them is going to get a factor rate, which is usually between 1.3 to 1.4. So, $10,000 x 1.4 = $14,000. This is what the business owner will pay the cash advance company back within an approximate term. This is different than a traditional set-time period loan, such as having a 10 month time period to pay it back. We are going to take 14% of your credit card processing volume until the loan is paid back. $1,400/ $10,000 = 14%. The settlement goes over to the processing company, then the processing company takes the “batch” and usually place the amount of money made into the merchant’s bank account.

However, in this situation the cash advance company would take 14% of the amount made that day. This process will continue until the loan is fully paid off. Now, how much can the merchant get? Usually it’s between 80% to 120% of the processing volume per month. The merchant needs to be making well over $5,000 a month in credit card processing volume. The last thing we will discuss is the reason for the merchant needing a cash advance.

First of all, when you are presenting the cash advance to the merchant, stay positive. You want to talk about how their business is growing or opportunities they are trying to take advantage of. Now, the reality of business is that usually they need the merchant cash advance for some type of problem or issue where an unexpected expense has come up. Remember, they need to get the money quickly. Tomorrow, we will discuss specifically how to present the merchant cash advance in Part II and then in Part III, we will cover how to actually make it work.

James Shepherd

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How to Sell Merchant Cash Advances – Part II