The Merchant Cash Advance Journey from Broker to Funder

As merchant cash advances have become a popular financing option for small businesses in recent years, it has quickly become obvious how lucrative it can be to make the transition from working the phones to working the deals.

The transition from broker to funder can provide significant benefits: by becoming a funder, you have the opportunity to control the entire process from start to finish. Driving the deals, you have the opportunity to make more money, and can establish relationships with banks and payment processing systems that align with your business goals. You can choose a CRM system that best fits your needs and invest in a strong legal and accounting infrastructure to ensure compliance and accountability. Additionally, as a funder, you have the ability to diversify your portfolio and make informed decisions on the types of deals you want to fund, which can lead to higher returns and more stable growth.

While many brokers have the gift of the gab and expertise to sell the advances, they may not have the necessary knowledge of systems and processes in place to manage the risk and operational aspects of the business to go to the next level. Additionally, funders, more than brokers, have the relationships with banks, CRM systems, collection firms, and legal entities that are necessary to run a successful merchant cash advance funding business. The lack of these critical components can limit the growth potential of a broker.

The evolution from a broker to a funder is not just a matter of expanding the business, but it requires a complete overhaul of the systems, processes, and legal frameworks. In this article, let’s explore the key steps that a broker needs to take to become a successful merchant cash advance funder.

Step 1: Having The Right Bank Account

Having a proper bank account is the first step towards becoming a merchant cash advance funder.

Traditional banks, such as Chase and Bank of America, are not built for the rapidly brave new world of financing options, and instead cater to the old models. If they see (what they deem to be) ‘irregular’ incoming and outgoing payment just as you begin offering your first few deals, they can cause you a lot of stress, and even shut your account.

Researching all the options available before you begin funding deals is crucial to build up your business and to avoid stress down the road.

Step 2: Finding The Best ACH Payment Processor

The best way to accept the daily payments owed to you is by working with an ACH payment processor that understands the MCA space. While some traditional banks do offer ACH ‘pulling’ for free, their service is often tied to the amount you have sitting in your account at the bank, which means it’s not working for you to make more. For example, some stipulate that your account needs to have three times the amount that you’re planning to pull daily, just sitting there. So if you’re pulling $200,000 a day, now you have to have $600,000 just sitting there in reserve, which you can’t use to fund other deals you could be making money on.

Instead, finding ACH payment processors that specifically understand the business and your needs will free you up to strive to collect as much as you can, every single day. While it might cost you a little bit, you have the option to now make that calculation of whether it’s better to have free ACHs or have the money available to fund deals and make money off of. A wise man would tell you the latter is the right way to go.

Step 3: Picking A CRM System

A CRM system is an essential tool for tracking the deals, payments, and collections. There are about 8-10 mainstream CRM systems that cater to merchant cash advance funders, and the choice of the CRM system depends on the volume of deals you fund, the presence of syndicators, and the type of deals you fund.

Pick a system that best serves your needs: how it accounts for sub deals and tranches, whether it helps you identify the best and worst performing deals, and if it generates the reports you need to make the most informed choices for your business going forward.

Step 4: Setting Up Your Legal Framework

Setting up a legal framework for contracts is an important step in the journey from a broker to a funder. A proper legal framework ensures that the contracts are enforceable and protects your interests.

It is worth consulting with a lawyer familiar with merchant cash advance to help you prepare thorough contracts for the businesses you advance, your ISO’s and brokers, to ensure you are secure from any attempts to avoid payment and backdooring on your own deals.

Step 5: Collections

In an ideal world, every deal a MCA business funds would get paid pack easily and smoothly, but frequently, that is not the case. Too often, business owners prove why they needed the advance in the first place, and repeat the mistakes and bad habit that puts them in a perilous financial position once again.

If they don’t pay you, your business will quickly begin to suffer and face increasing cash flow problems if you don’t handle it quickly, so having a reliable collection system is crucial for the success of a merchant cash advance funder. It’s good to ensure you understand your options to give yourself the best chance of recovering what you’re owed, including working with a third-part collections firm. The choice of a collection firm depends on the success rate and the level of support provided. A good collection firm should have a well-prepared collection attorney, provide timely support and have a strategy to collect on delinquent merchant cash advances.

Step 6: Accounting

Proper accounting is essential for tracking the overall health and viability of your company. It’s also especially important if you have a partnership or investment in place.

Better Accounting Solutions has been the leading accounting firm in the MCA industry for over a decade, and seen how successful a company can be when all their books are in order and the tremendous pressure and stress caused when it’s not.

Working with an accountant that is familiar with the industry and systems will help you ensure your business is legally compliant, trending in the right direction, and that all deals are in a good place.

Step 7: Lead Sourcing

You’ve set up the business, now you need customers!

There are several ways to find people and businesses who could use a merchant cash advance from your new business. You could reach out to family and friends, research and cold-contact people online or work with lead-generation agencies who will send you lists of hot prospects. Additionally, if you’ve already done all the previous steps listed here, then you can speak to the people you’re already familiar with in the industry to point prospects your way. For example, Better Accounting Solutions has drawn on our years of experience in the industry to connect new funders with brokers we know and trust.

Typically, if you’re a broker becoming a funder, than you already have the relationships with people who can direct customers to your new venture, but I always advise our clients to avoid backdooring or doing something with even the slightest inference of unethical business practices; its bad karma and can only hurt you down the line.

So there you have it, the seven steps of going from broker to funder, and taking your merchant cash advance journey to the next level. Wishing you the best of luck!

Bitty Bets Big

“It’s a new product, it’s a new pricing structure, for deals that are $20,000 up to $125,000,” said Daniel Dames, VP of Operations at Bitty Advance.

Bitty Advance formally announced at AltFinanceDaily Connect Miami that they will now be taking on bigger deals up to $125,000. They had started doing a few big deals back in November with select partners but now their new product, known as “Big Bitty,” is in full effect. Historically, the company had focused on microfunding, now known as “Core Bitty,” which they will still continue to do.

Better rates, longer terms, and lower fees is the new approach Bitty is taking with increased funding, according to Dames, and it calls for a bit more diligence on the underwriting and funding side. A merchant interview is required with Big Bitty as opposed to the strictly automated process enjoyed with Core Bitty, for example.

“This is Bitty, this is just a new product,” said Dames. “You submit the same way, you do everything the same way that you’re used to, really the difference is they see the numbers, they see the larger amount, they see the lower fees, they see the better rates, and they see the longer terms.”

Big Bitty isn’t just about doing bigger deals for the sake of doing bigger deals. Dames explained that they witnessed the challenges brokers face when having to send deals to multiple places and they recognized the value of being a one-stop shop for them.

eCapital ABL North America Division Funds $95 Million in Q4 2022

MIAMI – January 23, 2023 –eCapital Corp. (“eCapital” or “the Company”), a leading finance provider for businesses across North America and the U.K., issued $95M in lines of credit during the fourth quarter of 2022 through its eCapital ABL North America division. With this working capital, the companies – which include CPG products in the home and lawn categories – plan to grow their businesses by expanding product lines, scaling customer reach, and driving operational efficiency.

“Our team continued the momentum through the very end of 2022, by providing unparalleled financial solutions to our clients,” said Brian Cuttic, Chief Executive Officer Asset-based Lending at eCapital. “The dedication of our team is evident in our ability to understand and meet the unique needs of each business we serve, allowing them to achieve their goals with custom financial solutions that support their growth. We are proud to have closed out another successful year working alongside such amazing businesses and look forward to continued growth in the future.”

The businesses funded by eCapital ABL North America in the fourth quarter of 2022 include, but are not limited to:

• A $20M facility for the creators of the popular first-of-its-kind bathroom fragrance and other home fragrance products. The company will use the funding to sustain operations through peak seasons and accelerate the business for the future.
• A $35M facility for a manufacturer and distributor of watering products and accessories. Backed by a prominent private equity sponsor, the company will use the working capital from eCapital to support operations across its multiple brands and manufacturing and distribution facilities.
• A $40M facility for one of the largest candle producers in the U.S. Also backed by a private equity sponsor, it will use the line of credit from eCapital to support continued product innovation and expansion among its multiple brand names and private labels.

eCapital ABL responds quickly to a business’ unique and changing needs, whether trade cycles, seasonality, customer base or other critical factors impacting growth. With international reach and expansive expertise in multiple sectors, eCapital ABL is uniquely positioned to support businesses with customized lines of credit that provide maximum flexibility to meet their goals and achieve long-term, profitable growth.

About eCapital Corp.

eCapital is committed to accelerating access to capital for companies in the United States, Canada, and the U.K. By leveraging a team of over 800 experts and proprietary, industry-leading technology, eCapital is creating the future of business funding. With a full suite of products such as freight factoring, invoice factoring, lines of credit, asset-based lending, payroll funding, and equipment financing, eCapital ensures businesses have the funds they need to do more. Through its Transportation, Staffing, Wellness, Healthcare, Factoring and ABL divisions, eCapital delivers customized funding solutions for over 80 industries. To learn more about eCapital, visit eCapital.com.

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From Zero to $28 Million

Back in June 2022, Eddie DeAngelis was getting ready to launch QualiFi in a Philadelphia suburb. After having started in the industry as President and partner with Bizlender in 2013 and then founder and CEO of Amerifi, LLC in 2017 (later acquired by Nav Technologies Inc.), success for DeAngelis’ newest startup was bound to draw heavily on the experience he had gained throughout his career. But, times had changed a little.

“In my opinion, this is probably the hardest and most competitive over the last 10 years this business has ever been,” he told AltFinanceDaily. “Every deal shopping around, they’re working with multiple brokers…”

QualiFi connects businesses with funding sources. Real estate loans, AR financing, PO financing, equipment financing, and term loans are among their core products. It’s not a revolutionary business model in that of itself. The key is in execution, which by any measure the company seems to be accomplishing quite well so far. In August alone, QualiFi closed 33 deals for a total of $2.4M in financing and continued the streak until November when it eclipsed $11.3M in just one month split across 57 deals.

In roughly less than seven months since launch, DeAngelis said they’ve surpassed $28M in closed deals. To be sure, DeAngelis doesn’t take all the credit for the impressive start. Jason Maury, a QualiFi partner and VP of Sales, has been instrumental in executing the company’s strategy, DeAngelis said. Part of that strategy he shared.

“99% of all our traffic is from inbound leads,” DeAngelis said. The company runs a variety of marketing campaigns that includes social media but nearly half is attributable to referral partners.

“We have banks, a couple of credit unions, and CPAs that we work with that send us some of their clients that are either maxed out on their line of credit or just simply can’t get approved from the bank,” he said.

The company doesn’t take any of those relationships for granted, which means QualiFi reps need to be qualified to take on their tasks.

“We have an approximate five week on-boarding process for all new hires,” DeAngelis explained, adding that it’s one of the most intensive sales trainings out there. New people to the business must go through it before they get on the phone with potential customers. All of that training is on-site at the company’s office, not something that is offered remotely. Doing this business in person is something QualiFi puts a high value on as the team is expected to be in the office Monday-Thursday. Fridays are allowed to be remote.

There’s a little more to it. DeAngelis said that “culture and the environment is another piece” and that leadership is about supporting everyone and keeping a team mentality.

“Even after they’re done their five week training, Jason and myself are always all over the floor,” DeAngelis said. “We’re very involved in the trenches day-to-day. We do ongoing support training once a week…”

All told, even with the current state of the economy, QualiFi anticipates an opportunity to help more business owners when they will probably need it most.

“We’re remaining pretty optimistic,” DeAngelis said. “As we’re going into an even more volatile economy in the new year, I think the banks are really going to be squeezing and not really looking to put too much money out there and take any risk at all. So I think that a lot of that business is going to come our way potentially. That’s what we’re hopeful for.”