How to start a merchant cash advance business?

How to start a merchant cash advance business?

Making money with money seems like a good idea, and one way to do this is to know how to start a merchant cash advance business. But before you go on planning anything, let's get to know the details from the start. What is a merchant cash ...

Making money with money seems like a good idea, and one way to do this is to know how to start a merchant cash advance business. But before you go on planning anything, let’s get to know the details from the start.

What is a merchant cash advance in the first place? It may sound like a loan, but it’s not. As the name suggests, it’s a money advance, where instead of paying debts in portions over time, it’s daily. The lender has the leverage over here, as most, if not all, that offer merchant cash advance have very high interests because there’s no collateral needed. 

It sounds like a pretty good idea, right? Then read on to know the necessary information you’ll be needing.

What do I need to know to set up a merchant cash advance business?


To lend cash, you’ll need lots of it in the first place, which is why you’ll need a large sum of money. It depends on how small or big the business you want to start up is, but you will need around $25,000 up to $500,000. The amount will cover all the initial expenses you’ll need to build the business, like permits, offices, money to lend, etc. 

If you have insufficient funds, you have several options wherein you can acquire the amount needed for your business. 

Some of these are:

  • Bank Loan – you’ll need to present documents and prove financial credibility and stability to the bank to get a loan.
  • Investor – an investor will provide the funds required. You will need to find someone and convince him or her of the benefits of your business. You will be signing a contract to determine terms, the portion of shares, and the like.
  • Partnership – you’ll need to find someone you can become equal business partners with, who has the appropriate funds to establish the business.
  • Loaning money from family or friends – a family member or friend loans you the money. The payment agreement may be verbal or written.

To start any business, you’ll be needing to procure several types of legal documents. The requirements for each country and city varies. So, it’s essential to contact your local city government to know what you’ll need. Inform the involved departments what kind of business you’ll be creating so that you’ll learn all the rules and avoid any violations.

These are some examples of permits that are typically required:

  • Business permit
  • Registration of business name
  • Federal and state tax identification number
  • Occupational license
  • Sales tax permit

Partner for credit card processing

Merchant cash advance businesses don’t collect the money in cash or checks. How it works is, the deduction is automatic in the point of sale terminal or payment terminal. A certain percentage goes from the merchant’s daily sales and is then sent directly to the lender. 

For this method, a merchant cash advance business creates a deal with credit payment processors. If the client’s payment terminal is incompatible with the process, they will need to replace it with any of the units partnered with the lender. You’ll need to check out the available processors in your area and the banks connected to them to know the entire process.

After contacting the necessary offices and securing and submitting permits, you’ll then need to know how to run your business.

What do you need to know when running a merchant advance business?


To start making money, you’ll be needing clients. You can reach clients through various methods like cold-calling, email offers, and online promotion. But you can’t accept all of the clients that come your way.

Here are the initial requirements for merchant cash advance clients:

  • The business has been active for a minimum of one year.
  • The total monthly sales should be high enough and correspond to the advance requested.
  • The company or merchant has a payment terminal.
  • Must meet the minimum amount of cash advance (the lender will state the minimum amount).

Evaluation of clients

Similar to banks granting loans, merchant cash advance isn’t available to all merchants. Every client has to go through a thorough examination to determine whether they can pay back the advance they want.

After filtering applicants from the initial screening, the clients must give substantial evidence of their business’ good financial standing. They will need to submit financial statements and underwriting to prove their capacity. These documents will allow you to assess if the amount they are requesting is appropriate. You may increase or decrease the cash advance based on them.


To ensure the validity of clients’ information, you will need to check with the banks involved directly. It’s important to note that check and bank verifications have fees.

Additionally, you need to know whether the client has refused to give important details that directly affect their repayment. Some factors to keep in mind are existing loans, incorrect declaration of monthly sales, and the like.

Since you will be entering several contractual agreements with clients, you will need constant legal help. Every contract you enter must be binding and avoid having loop-holes that clients can use against your business. All deals must be ironclad, which is why you need a lawyer to check and make sure that every written agreement is sound and concrete.

Collection of Debt

In case any of the clients’ businesses close, this is where the underwriting comes in. But since there will no longer be a payment terminal, you will need to formulate a new agreement for the remaining balance immediately. Contact the client and create a contract for the new payment scheme. In these situations, the lender may choose to accept payment through cash, checks, or deposits.

When you enter this business, you will certainly reap big interests. However, as there is no collateral, you have a disadvantage should a client disappear or go bankrupt. That’s why you need to be meticulous when it comes to the clients you accept. Consistency in filtering out bad applicants is the key to this field. A steady flow that lasts is undoubtedly better than a short downpour.