Well, the term ‘business’ is not only an act of selling and buying, but to also enhance it in different ways to maximize profits. But before all of this, you need a proper source of funding and financing to set up your business and give it a good start.
While some start-ups choose capital funding, others might go for different routes such as loans, merchant cash advance or crowdfunding. Once the funds are ready, you can now diversify every section of the business plan you mapped out.
In this article, we will be discussing about Merchant Cash Advance and How to Start its Business.
What is Merchant Cash Advance?
A merchant cash advance is money offered against future sales. Rather than considering it a kind of loan, it is a kind of financing available to companies which have a steady volume of sales on their credit cards, inclusive of their medical, retail and dine out expenses.
Unlike a loan where the lender asks for repayment of principal amount along with interest, in merchant cash advance, the lender provides the whole sum of cash up front beforehand, and gets his money back by deducting predetermined percentage of your daily debit and credit card sales along with an agreeable additional fee until the full amount is repaid.
Their criteria of weighing credit and evaluating risk is much different than that of a bank. In a nutshell, it means selling a portion of future credit sales to acquire funds and capital on immediate basis.
Steps to Start a Merchant Cash Advance Business
Step 1: Market Research and Feasibility Study
Before you set up a business, it is important to conduct market research in order to understand the industry and the demographic and psychographic composition of those who require cash on urgent basis but cannot fulfill the requirements of getting loans from banks or any other financial institution.
The demographics should include start-ups, aspiring entrepreneurs and all workers operating within and outside of the city.
Step 2: Decide Target Market & Niche
It is not practically possible to decide on any niche within the merchant cash advance business. All you can focus on is providing short term loans to borrowers or clients. These services are usually provided by credit or charge card issuers. They allow the cardholders to withdraw cash up to a certain limit which can be credit limit as well.
Just make sure, you know how to raise capital, all the ways to reclaim loans from debtors and how to reach out to the target audience, who are one’s in need of immediate cash advance without stressing about pay back.
Step 3: Know Your Competitors
It is very important to know what is happening around you in the same industry. While the level of competition does not matter in any industry if you have done your due diligence towards the right direction.
In every industry, there will always be brands which are better than your business or will be regarded so by other customers or even the general public. It is the best opportunity to learn from brands which are at a greater stature than your business.
Step 4: Choosing Business Structure
Choosing the company’s legal structure impacts daily operations, taxes and financial risks of the business.
According to the SBA, the most common business structures are-
- Sole Proprietorship
- Limited Liability Company (LLC)
- S Corporation
- C Corporation
To know in detail about these 5 business structures, check out this article.
Step 5: Deciding a Catchy Brand Name
People might forget your name, but they should never forget your brand’s name and what services it offers through the business name. Make sure you choose a creative name for the business with a long-term perception of what the business represents.
Step 6: Protect Your Intellectual Property
If you are a start-up in the merchant cash advance business, you might not feel the need to file for IT protection or trademark because your business might not have caused any legal trouble yet or any illegal use of the intellectual property of the business.
But it is always better to protect your company’s logo and other important documents and software by filing for IT protection. The easiest way to go about it is to register your trademark by filing with the USPTO.
Step 7: Getting Necessary Certifications
Proper certifications make your business stand out. It shows the public your worth and impact in the industry.
There are some major certifications you might think of getting before starting your own merchant cash advance business such as-
- Certified Merchant Cash Advance Professional
- Degree in Finance Related Courses
Even though you can run a cash advance business in the United States without certifications, it is always better to get some.
Step 8: Documents Required
It is impossible to run any business in the United States without proper documentation.
Here are some legal documents you are expected to have in place if you are thinking about opening up your own cash advance business in the United States of America.
- Certificate of Incorporation
- Business License and Certification
- Business Plan
- Non-Disclosure Agreement
- Employment Agreement
- Operating Agreement
- Insurance Policy
- Consulting Contracts
- Company Bylaws
- Memorandum of Understanding
Step 9: Hiring a Qualified Team of Professionals
There is no special technology or equipment needed to run a cash advance business except a customized cash advance services software, social media management software and financial software apps. You will definitely need computers, internet, telephone and fax machine at your office.
If you wish to start a medium-scaled cash advance business, you need a team of 10 to 20 professionals with proper knowledge of accounting and finance.
Step 10: Developing Marketing Strategies and Creating an Identity
Businesses tend to spend almost half of their capital in marketing services to boost their brand awareness.
Some of the ideas to boost brand awareness are-
- Adverts in TV, radio and financial magazines
- Word of Mouth
- Leveraging on social media platforms like Facebook, Instagram, YouTube & Twitter
- Banners and Billboards across the city
- Contacting corporate organizations, start-ups in the United States to inform them
- Bringing in traffic through search engines and official website
With this easy process, you can establish your merchant cash advance business with higher rates than any other financial provider or institution.
Therefore, making sure about the positive Return on Investment is most important before signing any document to set up a new business.