Am I Talking to a Broker? Does it Matter?

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Many merchant cash advance applicants have found the relationship structure of the companies involved confusing. Others who thought they understood it, later found out they were wrong. There are likely to be at least 3 parties involved in the process. Below is a breakdown of each and their role:

Cash Advance Provider: This is the company taking liability on the advance. They are the entity purchasing your future receivables at a discount. They also handle the decision making on approvals. It is very likely that they do not have an outbound marketing campaign or customer service department. They may rely on Brokers to bring in clients and service the accounts. The Cash Advance Provider pays a commissioned percentage of the advanced amount to the Broker for their services.

Cash Advance Broker: This is the reseller of the cash advance. Their business purpose is to acquire clients and submit their applications to the Cash Advance Provider for approval. They generally will also provide customer service. The Cash Advance Provider pays a commission to the Broker for every client of theirs that is funded. Brokers do not have to charge their clients for their “service” as the Cash Advance Provider is already paying them.

Credit Card Processor: In most cases, repayment of your advance depends on the Processor diverting a percentage of credit card transactions to the Advance Provider.

In order to do so, the Processor has to have contractual agreements with the Advance Provider. That is why in most cases, businesses are required to convert their processing to a new company. There is no Advance Provider that is compatible with all processors.

The Credit Card Processor performs it’s own risk analysis on the business as well. They want to ensure that your transactions are legitimate, secure, and consistent with the stated business model. Approval of an advance conditionally relies upon approval with the Processor.

This being known, some Advance Providers rely solely on Brokers to acquire clients and thus there is no way to apply directly with the Provider directly. For cost purposes this shouldn’t matter. The cost of the advance itself is the same whether a Broker is involved or not. However, SOME brokers charge additional fees for their service to the client themselves. They may try to convince you that it is the Cash Advance Provider’s fee, a set up fee, a reprogramming fee, a legal fee, etc. These are just disguised names for the Broker’s fee.

In some cases the Cash Advance Provider may charge up to $200 to file a UCC1 on the client’s business once the contract has been executed. Any amount higher than that is most likely not a necessary fee to be passed onto the client.

Clients should ask upfront with their account representative if any additional fees will be charged upon execution of the contract. Some will charge, some won’t. Whom the client decides to apply with is their choice.

Last modified: April 20, 2019
Sean Murray

Category: ACH Advances, business cash advance, merchant cash advance

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