How to Start a Cash Advance Loan Business and Get Profitable in 2023

Unlike traditional loan businesses, a merchant cash advance business starts with low initial capital. It is also less risky because you only lend small amounts of money as opposed to big, traditional lenders. So, we advise you to consider an MCA at the beginning of your business venture to benefit your startup.

How Merchant Cash Advance Can Benefit Your Cash Advance Loan Business

What is a merchant cash advance loan? It is an alternative to a traditional loan designed especially for small business owners. They offer a fast approval option without much paperwork involved. The cash advance agreement you have with the lender is based on three primary factors – the amount you lend, the repayment amount, and the holdback.

The advance amount is the lump sum you give to the borrower. The amount depends on the financial strength of the borrower’s business. The repayment – also called the payback amount – is a calculation based on the amount borrowed and the additional fees incurred by the loan.

The holdback refers to the percentage agreed by the lender and borrower. The percentage is based on the daily total of the credit or debit card sales of the lender, which becomes the payment to the merchant cash advance. 

How Can You Be Eligible for an MCA?

Any business that earns more than $50,000 annually is eligible for a merchant cash advance. However, each lender has a different set of requirements. Some might require a minimum monthly income of $2,500, while others might require a $5,000 income per month. 

More so, some merchant cash advance companies might require that you’ve been in operation for six months in order to be eligible, while others want at least a year to become eligible. Aside from that, a borrower should have at least a 500 minimum credit score. Once you are approved, you will be able to receive the money into your account after two days. 

In addition to the cash advance application process, this section will discuss how to pay off cash advance loans. The two most popular methods are through percentage rate deductions, when the lender gets a percentage of your total daily credit or debit card sales as payment, or through fixed withdrawals from your bank account. 

5 Ways to Start a Cash Advance Business

The best thing about merchant cash advances is you can have a brick-and-mortar store or offer instant cash advance loans online from payday lenders on the same day. Here are a few things to remember when starting your own cash advance loan business:

1. Office Space

You don’t need a big office space when you start a cash advance business. All you need is a 5’X5′ space, a computer with an internet connection, and a phone. You can forgo the broadband connection if you don’t want an online presence.

2. Capital and Interest Rates

Since you will be lending to different businesses, you need lots of capital. However, you can start small by lending only to a few vetted borrowers. 

As for the interest rates, you need to know your state legislation. Nonetheless, interest rates can range between 10% and 35%. You also need to remember that a merchant cash advance is an unsecured loan, which means you will not require collateral. Therefore, getting post-dated checks from the borrowing party is an important requirement. 

3. Credit Investigation

The reason why a merchant cash advance is popular among small business owners is that they don’t require a thorough credit investigation process. As an MCA provider, you need to be quick at vetting a potential borrower. One of the fastest ways to do that is to ask for a copy of their latest sales report to check how much they are making every month. 

4. Complementary Source of Income

A merchant cash advance business can become a complementary source of income to your existing business. Business types that can complement an MCA business well are trucking or car rentals, furniture rentals, and pawn broking business. 

5. Demand is Great

Small businesses are in need of fresh capital after the COVID-pandemic; thus, there’s a great demand for micro-loans. Consequently, you will have plenty of customers who need money for their businesses.

Conclusion

If you are ready to start your MCA business, you must invest in local advertising, such as pamphlets, flyers, and local newspaper advertisements. If you want to have a bigger audience reach, investing in a website and online advertising is a great move. The advertising cost is minimal compared to the profit you will gain in the future.