Merchant Cash Advance: Do You Know What You’re Selling?

| By:

shrugging shouldersContinuing on with the Year of The Broker discussion, I want to now shift focus to the continued wave of new broker entrants that are not receiving sufficient training. I don’t believe that it’s so much the fault of the brokers, as it’s the fault of the companies they are reselling for. Those companies usually fail to provide a structured training regime. Training provided to new broker entrants is typically centered around the memorization of sales scripts, the practice of outdated rebuttals, and the repetition of lines that can end up sounding very canned and robotic.

If I had to recommend new age sales training, I’d have to go with my favorite, which is Diagnostic Selling, promoted by the likes of Jeff Thull from Prime Resource Group ( Thull explains that as the sales consultant, you should be a valued source of business advantage for your client, rather than just a person that goes through a series of sales material regurgitation. You should have access to products, services, platforms, big data, knowledge, key players, new solutions, forecasts, trends, etc., that the merchant does not have access to, which allows them to see you as a “valued extension” of their organization. This leads to not just new client acquisition, but the real key to making money in our space, and that’s client longevity.

In order to truly achieve this level of sales consultancy, it’s important that you truly understand the products being sold because, firstly, you want to be able to distinguish between the products you are selling so that you can provide a valued consultation. You might find yourself selling one product when you should be referring another. Secondly, understanding these products is important from a regulatory standpoint as the legal connotations of the products must be disclosed properly or mistakes in disclosure, marketing, or funding agreements could become costly.

If you are an independent broker in the alternative commercial lending space, you are usually going to be selling one or multiple of the following products:

  • The Merchant Cash Advance
  • The Alternative Business Loan
  • Equipment Leasing
  • Accounts Receivable Factoring
  • Accounts Receivable Financing
  • Purchase Order Financing

To begin, let’s discuss the Merchant Cash Advance…

Product Value Points

  • Untapped Capital Resource: The client’s future revenues become a new asset that allows them to tap into today.

  • Great For Growth Investments: The cost factor of the product can be very high, but so is the potential return for growth investments. Let’s say a merchant has the opportunity to buy a piece of equipment for $75k that all analysis, estimates, and data shows can produce $300k in one year for their business, they get into a stand still when they discover that their conventional sources are used up, personal sources aren’t available, and only left-over profits from their business might be utilized but they aren’t enough in size to execute in total. So instead of limiting the growth of the business, the merchant would utilize my Merchant Cash Advance with a cost factor of 1.30 to purchase the $75,000 equipment. The cost factor would equate to $22,500 which can come right out of the profit of the growth investment, leaving still over $200,000 in profit on the table before taxes.

  • Great For Emergencies: Equipment malfunction? Needed roof repair? The merchant can use the Merchant Cash Advance for such issues and receive the funds in about 3-5 business days, that’s a pretty fast and efficient method of getting capital to keep the organization up and running if other capital sources are not available.

  • Don’t Let The Critics Win

    Critics of the product focus mainly on its high cost and it can be very expensive, but when used properly the product is a great leveraging tool.

    Critics fail to shed light on the value of the product in terms of the merchant’s usage. Going back to that Growth Investment example, if the product had not been available, then what were the other sources available for the merchant to take advantage of the growth opportunity? In actuality, there were no other credible sources. Had the Merchant Cash Advance not been available, that investment would not have been made, and a ton of national, state and local economic activity would not have taken place, such as:

    • The Equipment Manufacturer’s sale of the equipment
    • The Merchant’s generation of $300,000 in revenue based on having the equipment
    • The Purchaser’s revenue from borrowing costs incurred from the client using the advance
    • My individual commission
    • Then all of the federal, state and local taxes that would have been paid as a result

    All of that economic activity vanishes if said transaction does not take place. Despite the high cost of the product, the fact is that this transaction would have been a win across the board for all parties involved including the Manufacturer, the Client, the Purchaser, Myself, as well as the Federal/State/Local Government. The true value of business capital, no matter if it’s conventional or alternative, is that the capital should produce enough new revenues so that it truly pays for itself.

    Last modified: June 22, 2015
    John TuckerJohn Tucker is Managing Member of 1st Capital Loans LLC, as well as an M.B.A. graduate and holder of three bachelor's degrees in Accounting, Business Management and Journalism. Tucker has nearly 9 years of professional experience in Commercial Finance and B2B Sales. Connect with Tucker on LinkedIn by clicking (here), or contact Tucker at or at 586-480-2140.

    Category: merchant cash advance

    Home merchant cash advance › Merchant Cash Advance: Do You Know What You’re Selling?