The merchant cash advance industry has seen a lot of changes in the past couple of years. Many providers have seen a shift in the types of businesses that are applying for this type of unsecured funding. Not only from an industry standpoint, but also in the type of applicant.
For example, many more people who have strong credit and healthy cash flow are applying for business funding, and as a result, merchant cash advance providers have had to make some changes to its product, specifically by finding ways to reduce the cost and extend the duration of these programs. Because of this, there has been a sharp increase in the number of “premium” advances. Where discount rates used to average around 28% over 6-8 months, they have now fallen closer to 23% over 12-14 months.
Another major shift in the industry is that merchant cash advance providers have had to find ways to cater to a completely different market. That is, businesses that do not accept credit cards as a form of payment from customers. There are plenty of really strong businesses out there who don’t process credit cards. It’s just not a part of what they do. Previously, these types of applications were quickly declined. Merchant cash advances are a purchase of future credit card receivables, so you can’t factor receivables that don’t exist.
Fixed Daily Payment Business Loans
In order to cater to these types of businesses many merchant cash advance providers have been rolling out fixed payment programs. These are true loans, with fixed payments and fixed terms, which is a far cry from the major selling points of a merchant cash advance. Many of these companies have become licensed lenders in as many of the 50 states as possible in order to provide these types of loans to businesses in those states. More and more of the deals funded in our industry fall into this category as companies figure out the best ways to market to and reach this new audience.