Merchant cash advance companies have some very important days in the year: Small Business Saturday, Black Friday, and Cyber Monday. These days hold relevance, not just because they support small business, but also because they coordinate with their success.
What we are trying to imply is that it may seem easy for lenders to say that they are highly coordinated, but the truth is that the mechanism is what helps them to get paid, irrespective of the performance of their retail holidays. A regular loan has to be cleared regardless; it has nothing to do with the volume of sales.
When a Merchant Cash Advance company buys a business’s future sales, they have a reason to expect the investment to be fruitful. But to improve their cause, it is just to keep a check on the increased sales. Their interest in growth is subject to the fact that the borrower has the capability to return the loan.
At times, MCAs are accused of creating debt-traps for businesses, but it shouldn’t be seen as so, because the livelihood of these companies is dependent on the success of their borrowers. After all, in what way will it make sense to buy the future sales of a company and then endanger it from generating those sales?
Perhaps, a more compatible example is Shark Tank with Kevin O’Leary’s well known royalty deal, where entrepreneurs fork over a percentage of their sales to repay the loan instead of sacrificing their equity. O’Leary has one objective with this technique: drive in maximum sales without hurting the business. And the case is no different with MCAs.
And then came Square, a payment processor which has lent out $300 million as MCA’s since its initiation and went public thereafter. It lends funds to those small businesses that use its technologies to process payments. Since processing fees form their core business, their products have a multiplier effect which may go in either direction. If the MCA turns out to be bad for their customers, their sales will go down and so will the MCA processing fee. This would mean an utter loss situation. But, if it proves fruitful for the customer, then the MCA fee will also increase.
But here, Square is not the only one. PayPal is another player in this field, which, with its PayPal working capital scheme, lent out more than $1 billion dollars to its customers. This one offers double incentive for its customers.
But why only double when you can have triple incentive? American Express is one MCA company with a financing program that allows stores to pay back their loan by a share of each sale they make with an AMEX card. Besides the regular attributes, it modified the aligned-interest systems. This is because Small Business Saturday, one of the most important days for the retail, was founded by AMEX in 2010. It rallies American customers to buy things with this card in every small business where it is accepted. It majorly benefits as a master facilitator.
So, while you plan out your marketing strategies with a handy list of merchant cash advance leads, you also have to think over strategies that can ensure that your client’s business is able to repay the loan taken from you. Perhaps that’s the reason why MCA businesses require a list of highly targeted leads.