Most MCA providers see the product as a form of funding with a ready market, high demand, and willing sales agents.
For brokers, the math is often simple; you dive in, link a business owner to a cash advance provider, and draw commissions from any deal that ends in funding.
And while that would seem like all it takes to make money by cash advance deals, the ongoing changes in the industry will now demand sales agents to rethink their approaches if they wish to continue making a living off the merchant cash advance business.
Brokers play a pivotal role in merchant cash advance funding. To break it down, let’s go through the MCA funding process to see how critical independent sales agents are to this group of lenders:
1. A direct or inbound marketing campaign leads to a discussion with a business owner
2. The business owner receives application forms and a request to apply and send it back with four months of merchant card processing and/or business bank statements.
3. The Sales organization follows up until the business owner submits the application forms and statements
4. The sales agent/broker evaluates the business to decide which financial provider to send it to.
5. The request is forwarded to selected lenders.
6. The lender sends final approvals and terms of funding to the broker.
7. The sales agent forwards the offers and conditions of funding to business owners.
8. Business owner chooses an offer
9. Broker/sales partner requests the contract forms from the funder and sends the contract with terms of funding to the business owner.
10. Sales agent collects agreement forms and other documents from the business owner and forwards to lender
11. The lender conducts final underwriting procedures and sends finances to the business owner.
12. Sales agents receive their commission for broking the deal.
That’s how important a sales organization (through an agent) is in the MCA business. So brokers will remain on demand as long as merchants need funding and funders are willing to offer it.
So what effect will that have on the Sales agent market in the long run?
If the MCA process remains as it is and more agents invade the market, then more agents make less cash. The total sum of commissions paid to agents will go up but, earning per individual broker will stay low.
The MCA industry did not see flaws in this when designing the procedure, but that doesn’t matter anymore now. Soon, funders in the MCA space will need to change their game plan. Anti-tech funders who choose to retain the old process will have to do double duty to ensure the approach is profitable by putting some money out there.
Because as we speak, the industry is passing a message that it is going to be more difficult to expand a brokerage business using only the funds you draw from commissions of funded deals.
You must put some money out there to convince brokers you are legit and you’re venture is money-making.
3 Different Ways to Make Good Money Broking MCAs
This example will help explain the three ways you can make money as an MCA sales agent.
MCA deal Terms
The total deal amount $20,000.
The factor rate is 1.25
The commission is 10 points on the deal amount
Zero default rate.
Labor, Utilities, and customer acquisition costs aren’t included.
How to make money off it:
1. Draw Commissions: If 50 Deals are funded * $2,000 Commission = $100,000 earned.
2. Roll Commissions Into MCA Deals: If 50 deals are funded * 2,000 Commission * 1.25 = $125,000.
3. Co-Funding: If 50 deals are funded ($1M) * 1.25 * — $1M = 250, 000
+ 50 deals funded * $1,000 Commission = $ 50,000.
Now you can do your math right and go for the best strategy. And from the figures, co-funding remains the most profitable to make money off MCAs.