Finance Company Adds New Products to Meet Needs
As a former Wall Streeter, Gina Mackenzie had a hard time warming up to the idea of merchant cash advance financing. “I seriously thought it was like payday lending.”
She became educated, she said, and the business has become more reputable as better providers have come to the table for merchants. Mackenzie herself has been in merchant cash advance financing for a few years now, currently with Rapid Advance, which is targeting the franchise sector.
A merchant cash advance is just what it sounds like: A merchant receives a capital advance from a company like Rapid Advance, quickly, with little documentation. Usually the payback term is short, 12 to 18 months. Rapid Advance gets paid back by taking a portion of the merchant’s credit card receivables each business day.
Mackenzie is the first to tell people, “If you can get traditional bank financing, do it. It can be a lot less expensive. It’s true: merchant cash advance is not cheap, with costs that typically exceed those of traditional financing, depending on the strength of the credit." It’s high risk for Rapid Advance, she said. They have no recourse if the merchant defaults, so the cost is high.
The product is designed to be short-term, providing, as Mackenzie puts it, an opportunity for merchants to quickly buy equipment, lease space, take advantage of an advertising buy, other soft costs—whatever the case may be.
“They are not meant to be with me forever,” she said.
However, the merchant cash advance industry, as a whole, is moving up in loan size, with a “whole different clientele,” Mackenzie said. “These are people who may not process credit cards as a majority of their income, and don’t have to.”
Rapid Advance offers a line of credit, up to $100,000. Customers only take down what they need, and pay a fee on what they used.
They also offer a bridge loan, which Mackenzie says is designed to get businesses through that first 90 to 120 days before their conventional, or more often SBA, loan comes through. Again no collateral is required and there is almost no documentation. The fees are higher, but Mackenzie notes there is a flexible payback: Some of the fee will be paid back to the business owner if owner prepays the loan early.