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Table of Contents

Lead Story

The shifting landscape of merchant acquiring

Patti Murphy


Industry Update

Merchants, courts debate credit card surcharging

Merchant groups press on for lower Durbin cap

Amazon unveils exclusive e-commerce program


How tax fraud impacts your merchants

Andrew Altschuler


The showroom effect

Dale S. Laszig
DSL Direct LLC

What to disclose to underwriters

Ken Musante
Eureka Payments LLC


Street SmartsSM:
The merchant cash advance

John Tucker
1st Capital Loans LLC

Getting legal with millennials in payments

Adam Atlas
Attorney at Law

A great leader may not be your friend

Steven Feldshuh

Facilitating collaboration to safeguard sensitive data

James Daube
Global Legal Law Firm

From EMV to CNP: A look into U.S. authentication

Christoph Tutsch
Onpex GmbH

Company Profile


New Products

Internet failover for high-volume merchants

OptConnect duo

Comprehensive, proactive ID theft protection

Business Financial Resources LLC


Brush up your phone manners


Letter from the editors

Readers Speak

Resource Guide


A Bigger Thing

The Green Sheet Online Edition

April 25, 2016  •  Issue 16:04:02

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Street SmartsSM

The merchant cash advance

By John Tucker

I want to begin this article by reiterating that I believe the time when the field of merchant services is based on actually selling merchant services is coming to an end. As detailed in my inaugural Street SmartsSM article, I believe the future of the merchant level salesperson (MLS) will be to rebrand as something totally different.

To remain competitive, MLSs must find ways to integrate multiple areas of merchants' businesses into creative, new solutions, so MLSs can bring in multiple revenue streams with one sale. Merchant services or merchant processing will no longer be a direct lead in for the sales process. Instead, it will be a part of the value-added package of whatever new solutions MLSs choose to sell.

The MCA product

Since I've been selling merchant cash advance (MCA) since November of 2009, I will begin the rebranding discussion with the MCA product. In this case, MLSs would rebrand themselves as alternative financing specialists. In researching the market challenges of small businesses, they will discover that many such businesses have issues in raising working capital based not on any derogatory credit or financial situation, but based on the fact that they are small businesses in general.

Many small businesses need business financing of only $25,000 to $40,000, and many banking institutions do not feel that the costs of underwriting warrant such small requests when they could invest their resources in underwriting loans in the $250,000 to $1 million range.

An MCA is the purchase of future credit card receivables using a factor rate, or cost factor, which is multiplied by the amount borrowed to determine the amount to pay back. There are no interest rate calculations, annual percentage rates (APRs), origination fees, fixed terms nor fixed payments associated with MCA transactions. As a result, if a merchant tries to calculate the "APR of the MCA," you should immediately inform the merchant that this is a different alternative financing transaction, and interest rates are not applicable to said arrangement.

With the MCA, you will have a purchaser (the MCA company) and a seller (the merchant), with said seller looking for working capital tomorrow and said purchaser looking to make a sizeable return on investment by advancing capital to the seller.

For example, the purchaser would take a look at a merchant's previous credit card processing statements and note that the business has been doing $25,000 a month in Visa and MasterCard processing volume over the previous 12 months. So the purchaser would propose to the merchant, "How about I buy $25,000 of your credit card processing receivables in exchange for advancing you $20,000 tomorrow? To collect my purchase of the $25,000 credit card processing receivables, how about I keep 15 percent of your monthly Visa and MasterCard processing volume going forward until the full $25,000 is collected?"

In this example, the MCA deal would be quoted to the merchant as follows:

As long as the merchant continues to process Visa and MasterCard card transactions the same as he or she has done over the previous 12 months, with no slowdown in business volume, and as long as the merchant is not perpetrating fraud, such as running sales through a different terminal than the one programmed with the holdback by the MCA company, then the merchant should complete payment in full in about seven months, give or take.

Main MCA value points

The MCA product is a resource for:

Merchant processing tie-in

For the collection procedure (otherwise known as the payback procedure), a merchant can utilize direct split funding that will require the merchant to switch processing to a merchant service provider that partners with the MCA company to split funds for a direct holdback on Visa and MasterCard processing batches.

Alternatively, the merchant could use a lockbox, which is a separate Federal Deposit Insurance Corp.-insured business bank account where transactions will settle into initially, and then settle back into the merchant's bank account within 48 hours after the MCA provider takes its holdback percentage.

As the sales rep, try to get the merchant to switch over the company's processing so you can obtain the additional processing revenue. Explain to the merchant that the lockbox would add one to two days to the time it takes for the merchant to receive processing settlements, whereas switching processors would allow settlements to flow as they normally would.

As I mentioned previously, the MCA involves no APRs or interest rate calculations. However, the MCA has a "cousin" in its alternative financing family tree: the alternative business loan. This product does involve an interest rate calculation, APR, fixed payment, fixed term and origination fee, as well as the side benefit of having a merchant build a positive business credit history. In the next edition of Street SmartsSM, I will continue this discussion on rebranding the MLS by discussing the alternative business loan.

John 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 also has over nine years of professional experience in commercial finance and business development. You can contact him by email at or by phone at 586-480-2140.

Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.

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