the merchant cash advance application process a guide for business

TheMerchantCashAdvanceResourcewww.merchantcashadvanceresource.com2011

THEMERCHANTCASHADVANCEAPPLICATIONPROCESSAGUIDEFORBUSINESSOWNERS

(WHATTOKNOW,NOMATTERWHOYOUAPPLYTO)

By:TheMerchantCashAdvanceResourcewww.merchantcashadvanceresource.com

AsitededicatedtoindependentinsightandresourcesontheMerchantCashAdvanceIndustry

TheMerchantCashAdvanceResourcewww.merchantcashadvanceresource.com2011

1.COMPLETINGANAPPLICATIONTheMajorityofMerchantCashAdvanceprovidersrequirebothbusinessandpersonalinformationwhenapplying.Socialsecuritynumbersandsignaturesarerequiredtoauthorizeacreditpull.Howyourcreditaffectsyourapprovaldependsontheunderwritingcriteriaoftheindividualfirm.Allofthemaredifferent.

TheMerchantCashAdvanceResourcewww.merchantcashadvanceresource.com2011

2.SUBMITTINGMERCHANTPROCESSINGSTATEMENTSTheseareseparatefromyourbankstatements.Manybusinessownersassumethatsincetheirbankaccounthasarecordofalldepositsfromtheirmerchantprocessor,thatbankstatementsalonearesufficient.Thisisnotthecase.Whilebankstatementswillbeaskedfor,themerchantprocessingstatementsarenecessaryforinformationlikesalesvolumebycardtype,returnfrequency,chargebackhistory,processingfees,monthlycosts,batchfrequency,averagetransactionsize,andprocessorimposedreserves.

TheMerchantCashAdvanceResourcewww.merchantcashadvanceresource.com2011

TheMerchantCashAdvanceResourcewww.merchantcashadvanceresource.com2011

3.SUBMITTINGBUSINESSBANKSTATEMENTSThisshouldbeself‐explanatory.Allpagesofeachbankstatementwillberequired.Sendingthefirstpagesummarydoesnotsuffice.TheMerchantCashAdvanceprovidermayusethesetoanalyzedailycashflow,verifyactivityfromyourmerchantprocessingstatements,andreviewwhatfundsarebeingusedfor.

4.SUBMITTINGADDITIONALDOCUMENTSEveryMerchantCashAdvanceproviderisdifferent.Anyofthefollowingmayberequested:

• ArticlesofIncorporation• K‐1ofrecentbusinesstaxreturn(toverifyownershipbreakdown)• Businesspropertylease• Driver’slicenseorphotoIDofowner(s)• Voidedcheck(wherefundswillbedeposited)• Recentbusinesstaxreturn• FinancialStatements

5.VERBALREFERENCESUnderwritersmaycontactyourvendors,yourbusinesspropertylandlord,orthebankholdingthemortgageonthebusinessproperty.Theywilltrytodetermineifyouareingoodstandingandlikelihoodyouwillcontinuetooperateatthatlocationunhindered.

6.PHONEINTERVIEWAllMerchantCashAdvanceproviderswillspeakwithyouatsomepointduringtheprocesstoreviewbusinessinformation,discussyouruseoffunds,andgaugeyourunderstandingandwillingnesstofollowthroughwiththecontractterms.

TheMerchantCashAdvanceResourcewww.merchantcashadvanceresource.com2011

7.SITEINSPECTIONSomeMerchantCashAdvanceprovidershireanindependentinspectionfirmtovisityourlocation,verifytheaddress,examineinventory,andtakenoteofhowmanycreditcardmachinesareonsite.

8.ESTABLISHTHEMETHODOFREPAYMENTIftherecoveryoffuturereceivablesisstructuredtooccurviasplitfunding,youmaybeconvertedtoanewmerchantprocessingcompany.Thisisnotthecaseforallproviders.Youwillgenerallyneedtoprocesscardsfor2fullbusinessdaysinamannerthattheproviderisabletomonitorpriortofundingIftherecoveryoffuturereceivablesisstructuredtooccurviaaLockbox,thenthiswillbetheverylaststepintheprocess.Youwillgenerallyneed2fullbusinessdaysworthofmerchantsalestobedepositedintothisaccountpriortofunding.Iftherecoveryoffuturereceivablesisstructuredtooccurviadirectdebit,atestdebitmayoccurpriortofundingtoensuretheprocesswillwork.

9.COMPLETION/FUNDSTRANSMITTEDTOYOUOnceyoureceivefunds,theMerchantCashAdvanceproviderwillrecovertheirpurchasedreceivablesinaccordancewiththecontract.

TheMerchantCashAdvanceResourcewww.merchantcashadvanceresource.com2011

GLOSSARY

MerchantCashAdvance:Thisisapurchaseofabusiness'sfuturecredit/debitcardreceivablesatadiscountedprice.ItisverysimilartoAccountsReceivablefactoring,withtheexceptionthatthesereceivablesdonotyetexistatthetimeofsale.TheMerchantCashAdvanceproviderretrievestheirpurchasebywithholdingaspecifiedpercentageofeachcardsaletransacted.Businessownersshouldbeawarethatthereisnotablanketcostorretrievalpercentageforthisfinancialproduct.Therearemanyprovidersandallofthemarerequiredtoevaluateyourbusinessfromtheirownperspectiveandcreateapersonalizedoffer.Mostwillpresentyouwithseveraloptionswithdifferentstructurestochoosefrom.AdvanceAmount:TheamountadvancedtothebusinessownerisreallycalledthePurchasePrice.Itisthediscountedpricepaidtothebusinessinexchangefortheirfuturecredit/debitcardreceivables.RetrievalRate:Thisisthepercentagewithheldfromeachcredit/debitcardtransactionandforwardedtotheMerchantCashAdvanceprovider.Thisrateispredeterminedinthecontractandunderallnormalcircumstancescannotbechanged.Itisoftenreferredtoastheholdbackpercentageorwithholdrate.PaybackAmount:ThisisthecostoftheadvanceandshouldbereferredtoasthePurchasedAmount.TheMerchantCashAdvanceproviderpaysadiscountedprice(theAdvance)tothebusinessownerforaspecifiedpurchaseoffuturecredit/debitcardsales.SplitFunding:SplitFundingisamethodusedforaMerchantCashAdvanceprovidertorecovertheirpurchasedcredit/debitcardreceivables.Themerchantprocessorplaysakeyrolesincetheyaretheonesthatactually"split"thebusiness'sdepositsbetweenthebusinessandtheMerchantCashAdvanceprovider.ThepercentagesplitisdeterminedbytheRetrievalRate.TheMerchantCashAdvanceprovidermusthaveapre‐existingsplitpartnershipwiththemerchantprocessorforthistobepossible.Morethanlikelythebusinessownerwillneedtochangetheirmerchantprocessortoobtainthefunds.SomeproviderscanstructurealternativestotheSplitFundingmethod.LockboxFunding:Alockboxisabankaccountresponsibleforthecollectionofpayments.AnalternativetotheSplitFundingmethodisLockboxFunding.ThisinvolvestheMerchantCashAdvanceprovideropeningalockboxaccountforabusiness.Thebusinessmustinstructtheirmerchantprocessortodeposittheirsalesintothisaccountuntiltheadvanceobligationshavebeenfulfilled.Thebusiness’scredit/debitcardsaleswillbedepositedintothisaccountandthebankwillappropriatelysplitthefundsinaccordancewiththeRetrievalRate.Thebusinessandtheadvanceproviderreceivetheirsplitbybankwire.RestrictedIndustries:Noteverybusinessthatacceptscreditcardscanapplyforfunding.Thebusinessmodelalonemaybecausefordisqualification.RestrictedIndustrytypesarebynomeansuniformacrosstheindustry,nordoesbeinghighriskimplythatanapprovalisnotpossible.Businessownersshouldconsultwiththeirsalesrepresentativetodeterminetheiroptions.