When it comes to business, the financial base is everything you need to care about. So, when there’s a shortage of it it stings the most. For the growing businesses and startups, thus Merchant cash advance arrives as the savior. That’s when a MCA business can come in to save the day. They provide the much-needed financing to help businesses steer through the rough patches.
The significance of MCA businesses lies in the fact that they help entrepreneurs achieve their business goals through timely financial solutions in their hour of need. However, before you start an MCA business, here is a detailed discussion on this subject to help you know in and out about it.
Merchant cash advance caters to short-term funding that is typically offered at high interest, often without the need for collaterals. It helps businesses with the much-needed financial support and receive repayments through their future sales.
The MCA industry is one of the most highly profitable businesses in today’s market status. But, a successful MCA business needs sound financial status and time.
Merchant cash advances have the advantage of a unique easy repayment. The lenders receive automatic payments based on the credit card sales of the borrower and this is continued until and unless the debt is totally repaid. For owners of cash advance businesses, it’s a streamlined setup that gives you more time to focus on branding and marketing.
If you are planning to help startups realize their dreams, it’s great to start off with an MCA firm
This step-by-step guide will show you exactly how to set up your own merchant cash advance firm, from looking into the industry to registering your business and considering the most useful digital tools and services.
1.Select an industry where you want to work
Even if you have enough financial resources and you want to finance budding entrepreneurs, you cannot provide help to anyone and everyone who is coming your way. It’s always recommended to have your niche selected well in advance. That is a much-needed step when you are new to the business. It is essential to select your industry based on your knowledge and experience while starting an MCA business. To become successful in your niche industry, try gaining a deep understanding of it. Needless to say, the more your experiences are in your industry, the better will be the chances for your business to thrive.
It might sound overwhelming or confusing at the very first stage, but you can think about it in the following way. The following tips might come to your help.
• Look for an industry where there is demand for products or services but not enough supply—for example, if people want something like cell phones but don’t have enough money available right now because they are saving up for something else (like maybe buying houses). This happens all over America every day! So, when you find a business that sells cell phones, you can consider these for providing merchant cash advance, because it gives you better returns.
• Look at trends in consumer behavior—what people buy based on price/value ratio instead of brand name recognition alone; what they commonly purchase together, and more.
2. Be aware of the industry trends as well as the challenges
When you are starting as MCA business, you need to be aware of the industry trends as well as the challenges that you might face down the line. Here’s a look at the leading trends of this business.
• Many start-up businesses opt for alternative lending sources like MCA for fast cash. This lowers the waiting time which is substantially more in traditional funding approvals.
• Such loans come with high interest rates and also high profits.
• When businesses face a crisis, the demand for alternative lending also increases. For scenarios like the Covid-19 pandemic, when businesses were suffering from a money crunch, many startups opted for the MCA loans. That was the time when the interest rates for MCA loans experienced a sharp increase.
MCA funding also needs to deal with challenges which include the following
• The standard rate is 10%.
• Overpriced startup cost
• Some SMBs who have already received cash advances often move on to another credit provider before they have even completed the full repayment of the advance amount.
3. Decide on a business model that works for you, but be prepared to adjust it as needed to meet changing client needs and market conditions
As you are developing your business, you need to remember that flexibility is the key to success. Since the market itself is extremely volatile and the client demands can change every time, it affects your business. If you want to grow your MCA business, you also have to adapt as the market changes: for example, if there are fewer people using credit cards for small purchases, then this could mean that fewer merchants need services like yours in order to get paid by accepting them.
It’s also helpful if you have backup plans in place so that even if something unexpected happens with one client (or even several), another source of income is available—and this is especially true if they’re willing–to pay more than what they owe now!
4. Craft a strong business plan that spells out your goals and outlines a timetable for achieving them
Having a business model ready means you have the probability of reaching your goals faster, avoiding pitfalls, and staying on track with what matters most to you as an MCA entrepreneur.
A good business plan has two main components:
• Goals—What are the specific things you want to accomplish as an entrepreneur?
• Strategies—How will you do this? What resources do you have available to help achieve those goals? How long will it take before each step toward achieving those goals is complete? What kind of results should be expected at each stage along the way (e.g., revenue targets)?
5. Team up with the right people who can help you reach your goals faster
The key to success is having the right people by your side, who have industry experience. While this may sound obvious, most of the successful MCA firms that have earned reputations have a wide variety of employees working together as a team. This includes financial experts, lawyers, and accountants who can help keep your firm in compliance with rules governing merchant cash advance firms and their clients.
Follow these steps for quick success!
• Keep in mind always that you are answerable to the audience.
• Keep in touch with your audience with effective communication
• Promote your MCA business—and this way you will be able to make more money if you can make your audience excited about what you do as you are! After all, the more the people know, the more the chances of your business increase.
• It’s important that when speaking with yourself (or anyone else), promote the brand thoroughly and you are all set. After all, being surrounded by a team of people who are doing amazing things every day and making your business run should not be forgotten.
Investment for merchant cash advance business
Instead of investing in a new brand name and various other things, it’s a great idea to buy a franchise from an existing cash advance firm. Such franchise fees generally cost around $100,000 but could be as low as $25,000. As a franchisee, you’ll receive training and marketing materials and be well on your way.
To start your own merchant cash advance business, you’ll likely need initial funding of $200,000, if not more. Most of your startup funds must be ready for borrowing.
Define a Profit Margin
Do your competitor research before you set your profit margin. A great way to see this is to use your competitors’ prices as a starting point for yourself. Once your business starts running, you can slowly determine your markup and final price points. Remember, the prices you use at launch are subject to market changes.
Define Your Business Structure
Before you start your MCA business, you need to define the structure of your MCA business, because that will influence your taxes, business registration, personal liability, requirements, and more.
Here are the types of business structures:
• Sole Proprietorship – Typically, the most common business structure for SMBs is that there isn’t any legal distinction between the business organization and its owner. In this structure, all income is accounted to the owner. He is the only one who is chargeable for any debts, losses, or liabilities sustained by the business. Due to this the owner has to pay taxes based on business income via his individual tax returns.
• Limited Liability Company (LLC) – This is the combination of corporations with the characteristics of sole proprietorship. In this structure, the owners do not bear personal liability for the debts incurred by the business.
• C Corp – This is an independent legal entity and unlike a sole proprietorship, the debts do not account to the owners as personal liability. Instead, the source of profits for the owners is the shareholder dividends. In this form, both corporations and owners need to pay taxes often referred to by the term double taxation.
• S Corp – Though it is a tax classification and not just a business classification, these are more like LLCs in terms of their functions. S-Corp businesses offer pass-through taxation, which means that all profits and losses incurred by the business directly account to shareholders.
However, as an MCA startup, it is better to go forward with the LLC structure because it offers the tax advantage of a partnership along with simplified management than a corporation.
Invest in MCA Software on a priority basis
MCA Software helps make the process of alternative lending easy and effortless. It comes with the following features:
• Client Data Collection
• Automation
• Marketing
• Analytics
For an MCA startup, this CRM helps in managing and streamlining the key jobs. MCA CRM streamlines front-end operations and optimizes customer lifecycle management for enhanced client retention.
With an MCA CRM software, the lending process is accelerated. Since everything is happening in real-time with data available at every touch point, the minimal approval time is for the disbursement of the fund
The Final Takeaway
Starting off an MCA business can be lucrative for obvious reasons, but make sure you have a steady source of finances so that you can provide loans to the borrowers. You can also get government grants. Also, do not forget to apply for business insurance as that can be a huge advantage for your MCA company.
