Traditional MCA Gets a Speed Makeover
“How about you fund me first and then you change my merchant account?”
Some account reps will testify that closing a traditional split-funding or lockbox deal can be a bumpy road. The pay-as-you-grow system sounds fantastic over fixed payments until they learn that they have to change their merchant service provider, process sales for two full days, and then wait an extra day for the ACH to arrive in their bank account. The switch could take a few days to several weeks. Have you ever tried to convert MICROS?! A good account rep can keep the customer patient, but that job gets a lot tougher when the fixed daily ACH guys interject right before the contract is signed. We’ll fund you in two days with no processing change required! The customer would have to settle for a fixed daily payment, but that may be secondary to their stress about switching processing before receiving funds. Many things could cross their mind:
- What happens if the download fails?
- What if they say I need a new credit card machine?
- What if my current processor locked my machine with a password? How long will this delay everything?
- What if I don’t process sales every day? Will I need to wait until I have two full days of activity?
- What if there are additional underwriting steps after I switch?
- Are they going to withhold a percentage from my processing before I even get the money?
- How long is this really going to take? I would prefer if I just had the money now and then I’d feel a lot more comfortable doing the rest.
- I kind of need the money by tomorrow, I really can’t risk this taking longer than they expect.
So when RapidAdvance announced their new Rapid Funding Program, we thought, “is this really what we think it is?” We had Sean Murray reach out to Mark Cerminaro, the SVP of RapidAdvance and we learned the program is real. They can and will fund merchants prior to changing the merchant account or setting up the lockbox. In the interim, they set up a temporary daily ACH repayment to protect themselves should the conversion experience any hiccups. Murray asked if this was perhaps a response to the fixed ACH payment phenomenon that has exploded in the last year. Cerminaro responded (We paraphrased some of his words in this story), “Variable payments offer benefits. Many merchants would prefer to set up their financing this way. Some of our biggest resellers still focus heavily on split-funding as opposed to the alternatives. We believe this program will help both them and the merchant.”
With the slew of new players in the merchant financing market, is speed just window dressing for an old product? An article in Upstart Business Journal called MCAs old! The fixed payment merchant loan seems to be all the rage these days, leaving some to wonder if traditional MCA is on the decline. Cerminaro says that assertion is false. “We’ve experienced substantial growth this year on our traditional MCA product, on all of our products actually. When big companies like American Express and Amazon came in offering their own Merchant Cash Advance or loan program, it made merchants more comfortable that our product and similar ones to it are mainstream. The New York Times even ran an article that listed Merchant Cash Advance as an acceptable form of financing for small businesses. This is all making Merchant Cash Advance more attractive than it ever was before.”
On 7/28/11, we penned an article that said the Merchant Cash Advance industry was waiting for its big moment. At that time, we believed the merchants weren’t using Merchant Cash Advance financing simply because they just hadn’t heard of it. It was the hottest thing that no one was talking about. Of course the era of anonymity is gone and businesses are rushing to get funding hand over fist. The only question now is whether or not this will continue to drive rates down. Cerminaro alluded that some funders are undercutting so much that they’re forgetting to price in the risk. Other industry insiders feel the same way and the debate over it has become the most active thread on the recently founded, DailyFunder.com forum.
Contact Mark Cerminaro for any questions or clarifications regarding RapidAdvance’s Rapid Funding Program at mcerminaro[at]rapidadvance[dot]com.
– Merchant Processing Resource
Sean Murray is the President and Chief Editor of deBanked and the founder of the Broker Fair Conference. Connect with me on LinkedIn or follow me on twitter. You can view all future deBanked events here.