MCA Agents Getting More Diversified

The response to the last blog post on the current state of the merchant cash advance (MCA) agent landscape was overwhelming. Ninety-five percent positive and a few negative criticisms. Many of you emailed asking for more insight about the agent network. So here it goes.

American Finance Solutions as a funding company is seeing a more diverse agent network in the past 12 months. Yes, our core agents are traditional ISOs that sell credit card processing along side merchant cash advances. However, we are seeing the majority of new inquiries coming from those that have never represented the product and quite often they just learned about the MCA product through a client, friend of colleague.

So who are these new agents? Most often they are current financial advisers or offer ancillary financial services; such as accountants, CPA firms, business brokers and attorneys. As the popularity and acceptance of merchant cash advances grows, I think we'll see more and more of these types of agents offering MCA in their product mix.

These new agents do however offer new challenges to funding companies in the way of training. First off they've usually lack complete product knowledge and often confuse the MCA with a traditional credit line. I cannot count the number of times I've been on the phone with a CPA and say for the tenth time, "There is no interest rate!" It is important to have simple, step-by-step, training materials for this type of new agent. AFS recently rolled out a new Agent Portal which we've been told has the most comprehensive training materials in the industry.

The larger challenge is that these agents have never sold credit card processing. It is very difficult to successfully sell a MCA without selling processing (which in my opinion takes ten times the product knowledge with equipment, POS systems, rates, etc). To effectively sell you need to effective sell both products with the basics feature/benefits.

At American Finance Solutions we never take a cut of the processing and thus do not benefit financially from the processing. While we attempt to educate these new agents to the best of our ability, it is really in their best benefit to partner up or hire someone/processor with the experience in merchant services that will take the time and patience to show them the ropes. AFS has developed relationships with processors that have great training and customer support teams that take the time to walk new agents through the application, pricing and conversion process to signing up (known as "boarding" in the industry) new merchants.

While these agents do not provide the volume of applications and funded deals, they do tend to submit high quality deals that usually have an approval rate well above 75% which makes sense. Their current clientele is generally a more established, sophisticated client that cannot access capital as in previous years. Also, the clients are usually not seeking maximum cash from the MCA which allows for shorter expected payback times and thus lower factor rates (and much less risk for the funding company).

Funding companies may not see the sheer volume out of this agent network, but if we take the time to educate and train them, the quality of clientele and overall portfolio will improve.

Alternative Finance Companies Here To Stay

Image by Metafora AD Network via Flickr

Business week recent wrote an article on entrepreneurs accessing alternative finance companies. You can read the entire article here. It confirms what most of us already know, banks have virtually shut their doors to all types of financing for small business! Credit lines (both secured and unsecured), equipment financing and even personal credit cards to business owners are all being denied.

The articles highlights the fact that alternative lenders, such as traditional factors, reverse equipment leasing and merchant cash advance financing is becoming the mainstream for business owners out of necessity. All of the above and more expensive than traditional bank financing since they involve the financing company taking on more risk.

As for merchant cash advance, it seems that we have finally made it out of the infant-stage of our new product and are now entering the mainstream. For our agents selling the product, now is the time to expand into new business types that have not used the MCA before and target clients with very good credit who would not have considered the product before.

MCA Agents: Choose Your Partners Carefully!

Over the past two months American Finance Solutions has seen a large increase in quality agents signing up to be partners. We screen all of our potential agents to make sure that there is a good fit. Specifically with ethics, aptitude and ease of doing business with. After chatting with the owner of the agency signing up it seems that most have a horror story about a previous MCA provider or worse yet were a sub-agent to an agent that was signed up merchant cash advance company.

Generally the story always revolves around payment of commissions or processing residuals. If a MCA funder is going under the quickest way to conserve cash flow is too stop paying commissions, that’s a no brainer. The company can simply exercise its clause in the contract to adjust commissions at any time without notice. However, this is also the fastest way to decimate the very individuals and companies that bring the business through the front door. I just don’t get it, not a smart short- or long-term business decision.

Make sure that you are partnering up with a solid industry player that has a proven track record, hopefully three or more years. If so, the funding company has made it through the past 18 months of rough times and is here to stay. Residuals income builds quickly with most agents earning in the mid- to high- four figures monthly just on MCA residuals (that’s not even taking into consideration the merchant processing residuals).

The second, most popular gripe involves the MCA company renewing a contract with a client the day after the renewal clause in the agent’s contract expires. For example, most contracts say that the agent will earn renewal commissions if the business enters into a new contract within three months after previous contract expiring. Funny how some MCA companies start underwriting the renewal in the final hours of the third month and wire the funds for the contract on the day after the three months. Then low and behold the processing changes from the agent’s merchant processor to some other one.

The worst stories involve those where an sub-agent relationship has happened. The funding company pays the commissions to the registered agent, their fiduciary duty is done. Then the sub-agent has difficulty in collecting from the registered agent. Why not sign up directly with the funding company, you’ll make as much or nearly as much and have a direct relationship that you can count on.

To summarize, when evaluating a new funding source to place your deals make sure you do your due diligence. Sure high-upfront and high-residual commissions sound great, but anyone offering these will not be around in a few months, the economics just don’t make sense. Or they’ll do your deals, but all of them will be at a lower commission structure in order to get approval.

Specifically ask the following:

1. What is the track record of the merchant cash advance company? Hopefully 36 months or more

2. Is the merchant cash advance company a licensed lender? If so, they made financial and operation commitment to be held accountable and will easily survive potential industry regulation.

3. What is the merchant cash advance company’s funding source? Hopefully institutional (i.e. a traditional bank or factor bank; not a hedge fund!)

4. Who do you partner with for credit card processing? (Make sure its strong industry players that will pay your processing residuals and have an ethical track record.)

5. Ask for other agent referrals? (If they will not give you these, there’s a reason!)