Do you want to start a cash advance business? If YES, here is a complete guide to starting a merchant cash advance business with NO money and no experience.
Okay, so we have provided you an in-depth sample merchant cash advance business plan template. We also took it further by analyzing and drafting a sample merchant cash advance marketing plan backed up by actionable guerrilla marketing ideas for merchant cash advance businesses. In this article, we will be considering all the requirements for starting a merchant cash advance business. So put on your entrepreneurial hat and let’s proceed.
Why Start a Merchant Cash Advance Business?
Being an entrepreneur is all about discovering a challenge in your city and being able to proffer solutions. Loads of people will be willing to pay you when you offer solutions to their problems. One of the challenges people go through is the challenge of raising finance to take care of their emergencies when they arise. So, if you know that you have got the financial strength and you can easily access loans from your bank, then you should consider starting your own cash advance business.
Cash advance business is a business that involves giving out quick loans to people who can’t approach the bank because they don’t have the required collateral or those who need the money urgently and can’t wait for the full circle of processing loans from the bank. Of course, the interest rate for cash advance varies, but it is often higher than what one can get from the bank. This is so because of the risk involved in this type of business.
No doubt starting a cash advance business requires a huge start-up capital, but the fact remains that it is a profitable venture. It is important to state that cash advance business is a highly risky venture because you stand the chance of getting your money trapped by those who for one reason or the other won’t be able to pay back the loans they got with interest.
It is very important that you analyze the existing cash advance business in and outside of your area. Know how many there are. Also, you would be required to check the existing competition, as well as know their strength and weaknesses.
Knowing the weaknesses of the existing cash advance businesses around you means that you would be able to learn from their mistakes and in turn come up with a better and more preferred cash advance services devoid of the mistakes and weaknesses of others.
So, if you have done the required feasibility studies and market research, then you might want to venture into this business. If you have been tinkering with starting your own cash advance business but do not know how to go about it, then you should consider going through this article; it will sure give you the needed guide and direction.
Starting a Merchant Cash Advance Business – A Complete Guide
- Industry Overview
The financial services industry is indeed a broad industry and one of the active line of businesses in the industry that an aspiring entrepreneur who has little start-up capital and good knowledge of how to handle money and reclaim debts can successfully start is a cash advance business.
A cash advance is a service provided by most credit card and charge card issuers. The service allows cardholders to withdraw cash either through an ATM or over the counter at a bank or other financial agencies, up to a certain limit. For a credit card, this will be the credit limit (or some percentage of it).
The Payday Loan and Check Cashing Services industry under which cash advance services falls under is indeed in a mature stage of its growth. The industry is characterized by growth in line with the overall outlook of the economy, consolidation from the largest players in the industry and wholehearted market acceptance of industry products and services. The cash advance line of business will continue to be in high demand by the general public in the United States.
It can’t be ruled out that the nature of the Payday Loan and Check Cashing Services industry gives room for it to perform well during the recession. This is so because as consumers struggle during difficult economic times, they use industry services to advance their paychecks or to get quick cash back.
Though as the economy continues to recover and consumers start to fatten their wallets, there is a likelihood that the demand for the industry’s services will decline. Moreover, industry regulations have been increasing and hampering revenue growth and profit margins for firms in the Payday Loan and Check Cashing Services industry.
The Payday Loan and Check Cashing Services industry is indeed a large industry and pretty much active in most developed countries of the world most especially in the United States of America, United Kingdom, Mexico and Canada et al.
Statistics has it that in the United States of America alone, there are about 14,569 registered and licensed (big, medium scale and small) Payday Loan and Check Cashing Services firms cum cash advance businesses scattered all across the United States responsible for employing about 89,794 people and the industry rakes in a whooping sum of $11 billion annually. The industry is projected to enjoy 1.8 percent annual growth within 2011 and 2016. The establishments with the lion share of the available market in this industry are Cash America International and AARC.
A recent report released by IBISWORLD shows that the Payday Loan and Check Cashing Services industry has relatively low barriers of entry, particularly when compared to other financial services industries. According to Cash America, a new retail location can be ready for business within four to eight weeks after the location and appropriate licenses have been secured.
Total start-up costs generally range from $500,000 to $600,000 for the investments in property and equipment. The report further stated that in Mexico and other international markets, start-up costs are generally less expensive, with the initial required investment ranging from $50,000 to $120,000 due to the smaller size of these locations and lower labor and materials costs.
One thing is certain about starting a cash advance services business, if you are able to conduct your market research and feasibility studies, you are more likely not going to struggle to secure clients because there are always clients all across the United States who would need your services from time to time.
Some of the factors that encourage entrepreneurs to start their own cash advance business despite the fact that the business is risky could be that the business is highly profitable and can be started informally, without the rigors of raising capital to meet certain capital base/capitalization as required by the regulating authorities.
Over and above, starting a cash advance business requires professionalism and a good grasp of how lending works. With the cash advance services business, you can afford to partner with other smaller firms that are into financial related services.
You can partner with tax consulting firms, accounting and auditing firms, as well as human resources consulting firms. The bottom line is that if you have a robust network and you are well positioned, you can indeed maximize profit with your cash advance business.
Starting a Merchant Cash Advance Business – Market Research and Feasibility Studies
- Demographics and Psychographics
The demographic and psychographic composition of those who may require cash advance cuts across people and start-ups who need quick loans but don’t have the requirements to access these loans from banks and other standard financial lending institutions.
So, if you are looking towards defining the demographics for your cash advance business, then you should make it all-encompassing. It should include start-ups, aspiring entrepreneurs and workers within and outside the city you are operating in.
List of Niche ideas Within the Merchant Cash Advance Business That You Can Specialize in
There are no niche ideas within the cash advance line of business; cash advance business operators basically provide short term loans to borrowers/their clients. Usually, cash advance services are provided by most credit card and charge card issuers. The service allows cardholders to withdraw cash, either through an ATM or over the counter at a bank or other financial agencies, up to a certain limit. For a credit card, this will be the credit limit (or some percentage of it).
The Level of Competition in the Payday Loan and Check Cashing Services Industry
The level of competition in the Payday Loan and Check Cashing Services industry cum cash advance services business depends largely on your financial base (the liquid cash you can afford to lend out per-time) and how big and organized your cash advance business is.
The truth is that no matter the level of competition in an industry, if you have done your due diligence and you promote your services properly, you will always make headway in the industry. Just ensure that you have what it takes to raise capital for your business, know how to reclaim loans from debtors and you know how to reach out to your target market (those who need cash advance and can successfully pay back without must stress).
List of Well-Known Brands in the Merchant Cash Advance Industry
In every industry, there are always brands who perform better or are better regarded by customers and the general public than others. Some of these brands are those that have been in the industry for a long while and so are known for that, while others are best known for how they treat their clients.
These are some of the leading cash advance services businesses/brands in the United States of America and also in the globe;
- Merchant Cash and Capital
- Merchants Advance Network
- Sure Payment Solutions
- United Capital Source
- AdvantEdge Corp.
- American Finance Solutions
- Business Credit & Capital
- Strategic Funding Source, Inc.
- Merchant Resources International
- 1st Working Capital Group
- Rapid Capital Funding
- H Capital
- Principis Capital
- Merchant Money
- Advance Funds Network
When it comes to starting a business like cash advance services business, you just have to get your feasibility studies and market research right before venturing into the business. It is good to mention that cash advance services business is not for rookies, it is for professionals who have successfully gathered the required experience and expertise to handle such business. But an aspiring entrepreneur can learn the ropes on the job. You just have to be careful so that you don’t get swindled.
Starting this kind of business definitely entails that you raise plenty of start-up capital (pool cash from interested investors). If you are already a wealthy person, this might not be an issue. Conversely, if you cannot, you may want to consider pulling the resources from family and friends. Depending on the scale at which you want to start from, you might require as much as multiple thousands of dollars to strike this off.
You will be expected to hire the services of experts that will help you with comprehensive economic and cost analysis regarding the profitability of the businesses within the location that you intend launching the business. If you get your economic and cost analysis right before launching the business, you may not have to stay long before you break even.
Starting Your Cash Advance Business from Scratch versus Buying a Franchise
When it comes to starting a business of this nature, it will pay you to buy the franchise of a successful cash advance services firm as against starting from the scratch. Even though it is relatively expensive buying the franchise of a merchant cash advance services firm, but it will definitely pay you in the long run.
But if you truly want to build your own brand after you must have proved your worth in an alternate financial services industry, then you might just want to start your own cash advance business from the scratch. The truth is that it will pay you in the long run to start your cash advance services firm from the scratch. Starting from the scratch will afford you the opportunity to conduct thorough market survey and feasibility studies before choosing a location to launch the business.
Please note that most of the big and successful merchant cash advance businesses around started from the scratch and they were able to build a solid business brand. It takes dedication, hard work and determination to achieve business success and of course you can build your own cash advance firm to become a successful brand with corporate and individual clients from all across the length and breadth of the United States of America and other countries of the world if you choose to operate online.
Possible Threats and Challenges You Will Face When Starting a Cash Advance Service Business
If you decide to start your own cash advance services firm today, one of the major challenges you are likely going to face is the presence of well-established merchant cash advance service firms and also other related financial lending businesses (micro money lending services, micro-finance banks and payday loan service firms et al) who are offering same services that you intend offering. The only way to avoid this challenge is to create your own market.
Some other threats that you are likely going to face as a cash advance services firm operating in the United States are unfavorable government policies, fraudulent people who may not want to pay back the loans collected, the arrival of a competitor within your location of operation and global economic downturn which may affect your ability to raise working capital. There is hardly anything you can do as regards these threats other than to be optimistic that things will continue to work for your good.
Starting a Merchant Cash Advance Business – Legal Matters
- Best legal entity to use for a Merchant Cash Advance Business
Generally, you have the option of either choosing a general partnership, or limited liability Company which is commonly called an LLC for a business such as a cash advance services business. Ordinarily, general partnership should have been the ideal business structure for a small scale cash advance services business especially if you are just starting out with a moderate start-up capital. But people prefer limited liability Company for obvious reasons.
As a matter of fact, if your intention is to grow the business and have clients both corporate and individual from all across the United States of America and other countries of the world, then choosing general partnership is not an option for you. Limited Liability Company, LLC will cut it for you.
For example, setting up an LLC protects you from personal liability. If anything goes wrong in the business, it is only the money that you invested into the limited liability company that will be at risk. It is not so for general partnerships. Limited liability companies are simpler and more flexible to operate and you don’t need a board of directors, shareholders meetings and other managerial formalities.
These are some of the factors you should consider before choosing a legal entity for your cash advance services business; limitation of personal liability, ease of transferability, admission of new owners, investors expectation and of course taxes.
If you take your time to critically study the various legal entities to use for your cash advance services business, you will agree that limited liability company; an LLC is most suitable. You can start this type of business as limited liability company (LLC) and in future convert it to a ‘C’ corporation or ‘S’ corporation especially when you have the plans of going public.
Upgrading to a ‘C’ corporation or ‘S’ corporation will give you the opportunity to grow your cash advance services business so as to compete with major players in the industry; you will be able to generate capital from venture capital firms, you will enjoy separate tax structure, and you can easily transfer ownership of the company; you will enjoy flexibility in ownership and in your management structures.
Catchy Business Name Ideas Suitable for a Cash Advance Services Business
Generally, when it comes to choosing a name for a business, it is expected that you should be creative because whatever name you choose for your business will go a long way to create a perception of what the business represents. Usually it is the norm for people to follow the trend in the industry they intend operating from when naming their business.
If you are considering starting your own cash advance services business, here are some catchy names that you can choose from;
- Good Deal Cash Advance, LLC
- Loan 24/7 Services, Inc.
- Sterling Vic Capital, LLC
- Your Go To Funds, Inc.
- Cap It All Cash Advance, LLC
- Team Excel Cash Advance Group
- Freedom Guaranteed Cash Advance, LLC
- Bright Mellow Cash Advance Ltd.
- Rest Assured Cash Advance, Inc.
- Life Line Cash Advance, Inc.
- Lake Camp Cash Advance, Inc.
- Get It Now Funds, Inc.
In the United States and in most countries of the world, you can’t operate a business without having some of the basic insurance policy covers that are required by the industry you want to operate from. So, it is imperative to create a budget for insurance policy covers and perhaps consult an insurance broker to guide you in choosing the best and most appropriate insurance policies for your cash advance services business.
Here are some of the basic insurance policy covers that you should consider purchasing if you want to start your own cash advance services business in the United States of America;
- General insurance
- Risk Insurance
- Credit insurance
- Deposit insurance
- Financial reinsurance
- Lenders mortgage insurance
- Health insurance
- Liability insurance
- Workers compensation
- Overhead expense disability insurance
- Business owner’s policy group insurance
- Payment protection insurance
Intellectual Property Protection/Trademark
If you are considering starting your own cash advance services business, usually you may not have any need to file for intellectual property protection/trademark. This is so because the nature of the business makes it possible for you to successful run the business without having any cause to challenge anybody in court for illegally making use of your company’s intellectual properties.
But if you just want to protect your company’s logo and other documents or software that are unique to you or even jingles and media production concepts, then you can go ahead to file for intellectual property protection. If you want to register your trademark, you are expected to begin the process by filing an application with the USPTO. The final approval of your trademark is subjected to the review of attorneys as required by USPTO.
Is Professional Certification Needed to Run a Merchant Cash Advance Business?
Aside from the results you produce as it relates to return on investment (ROI), professional certification is one of the main reasons why most cash advance services business operators stand out. If you want to make impact in the cash advance services business, you should work towards acquiring all the needed certifications in your area of specialization.
These are some of the certifications you can work towards achieving if you want to run your own cash advance services business;
- ‘Certified’ Merchant Cash Advance Professional
- Degree in Finance Related Courses
Please note that you can successfully run a cash advance services business in the United States and in most countries of the world without necessarily acquiring professional certifications.
List of Legal Documents You Need to Run a Cash Advance Service Business
The essence of having the necessary documentation in place before launching a business in the United States of America cannot be overemphasized especially a business like cash advance services business. It is a fact that you cannot successfully run any business in the United States without the proper documentations. If you do, it won’t be too long before the long arm of the law catches up with you.
These are some of the basic legal documents that you are expected to have in place if you want to legally run your own cash advance services business in the United States of America;
- Certificate of Incorporation
- Business License and Certification
- Business Plan
- Non – disclosure Agreement
- Employment Agreement (offer letters)
- Operating Agreement for LLCs
- Insurance Policy
- Consulting contract documents
- Apostille (for those who intend operating beyond the United States of America)
- Company Bylaws
- Insurance Policy
- Memorandum of Understanding (MoU)
Financing Your Cash Advance Service Business
Aside from the required capitalization and pool-funds to invest with, starting a cash advance services business can be cost effective. Securing a standard office in a good business district, equipping the office and paying your employees are part of what will consume a large chunk of your start-up capital.
No doubt when it comes to financing a business, one of the first things you should consider is to write a good business plan. If you have a good and workable business plan document in place, you may not have to labor yourself before convincing your bank, investors and your friends to invest in your business.
Here are some of the options you can explore when sourcing for start-up capital for your cash advance services business;
- Raising money from personal savings and sale of personal stocks and properties
- Raising money from investors and business partners
- Sell of shares to interested investors
- Applying for loan from your bank/banks
- Pitching your business idea and applying for business grants and seed funding from donor organizations and angel investors
- Source for soft loans from your family members and your friends.
Choosing a Suitable Location for your Merchant Cash Advance Business
Cash advance services business and most alternative financial services based type of businesses require that you see physically with your clients hence it must be located in good location; a location that is prone to both human and vehicular traffic, and a location that is at the epicenter of a business district if indeed you want to attend to loads of clients and maximize profit from the business.
The fact that you can operate your cash advance services business from any part of the world does not mean that location has little influence on the success of a cash advance services business. If you have taken your time to study the cash advance services business, you will realize that cash advance services business entrepreneurs are willing to pay expensive rents in order to stay in a busy business district; a place where business and financial activities are at its peak.
It is important to note that a business facility in a good location does not come cheap hence you should be able to allocate enough fund for leasing/renting in your budget. If you are new to the dynamics of choosing a location for a business such as cash advance services business, then you should feel free to talk to a business consultant or a realtor who has a full grasp of the city and perhaps country you intend starting your cash advance services business.
So, if you are looking for a location for your cash advance services business, ensure that it is a place that is located in a business district in your city, a place that is visible and easily accessible. Of course, you would not want to locate this type of business in the outskirts of town. Your clients should be able to drive down and locate your office with little or no difficulty.
Starting a Merchant Cash Advance Business – Technical & Manpower Details
On the average, there are no special technologies or equipment needed to run this type of business except for customized cash advance services software and social media management software applications and other financial related software apps. But you will definitely need computers/laptops, internet facility, telephone, fax machine and office furniture (chairs, tables, and shelves).
When it comes to choosing between renting and leasing an office space, the size of the cash advance services business you want to build and your entire budget for the business should influence your choice. If you have enough capital to run a standard merchant cash advance services business, then you should consider the option of leasing a facility for your office; when you lease, you will be able to work with long term planning, structuring and expansion.
As regards the number of employees that you are expected to kick start the business with, you would need to consider your finance before making the decision. Averagely, you would need a Chief Executive Officer or President (you can occupy this role), an Admin and Human Resource Manager, Fund Manager/Portfolio Manager, Risk Manager, Chief Financial Officer (CFO) / Chief Accounting Officer (CAO), Business Development Executive/marketing Executive, Debt Collectors, Customer Service Officer or Front Desk Officer and Accountant.
Over and above, you would need a minimum of 10 to 20 key staff to effectively run a medium scale but standard merchant cash advance services business.
The Service Delivery Process of a Cash Advance Service Business
On the average, the way a cash advance services business works varies from one agency to another, but ideally, a cash advance services firm is expected to first and foremost build a robust company profile before sourcing for working capital.
Basically, cash advance operators operate in the same way other micro lending services firms do. They get people to invest with them and pay them interest, while lending out that money to people who ask for loans and charging interest on those loans.
The difference between cash advance firms/micro lenders and banks is that banks have a ceiling on the amount of interest they can charge, which is stipulated in the Usury Act. Cash advance firms can charge any interest rate they like because of an exemption in the Usury Act.
It is important to state that a cash advance firm may decide to improvise or adopt any business process and structure that will guarantee them good return on investment (ROI), efficiency and flexibility; the above stated business cum service process is not cast on stone.
Starting a Merchant Cash Advance Business – The Marketing Plan
- Marketing ideas and strategies
As a cash advance firm, you would have to prove your worth over and over again before attracting investors and individuals to give you the needed liquid cash/working capital. So, if you have plans to start your own cash advance firm, it will pay you to first build a successful career in the alternative financial services industry.
So, when you are drafting your marketing plans and strategies for your cash advance firm, make sure that you create a compelling personal and company profile. Aside from your qualifications and experience, it is important to clearly state in practical terms what you have been able to achieve in time past as it relates to the alternative financial services industry. This will help boost your chances in the market place when sourcing for clients/investors.
Please note that in most cases when sourcing for funds from banks and other financial institutions, you will be called upon to defend your proposal, so you must be pretty good with presentations.
Here are some of the platforms you can utilize to market your cash advance firms;
- Introduce your business by sending introductory letters alongside your brochure to all the corporate organizations, households, start-ups, small and medium scale business community in the United States
- Advertise your business in relevant financial magazines, radio stations and TV stations (make yourself available for cash advance services business related talk shows and interactive sessions on TV and Radio)
- List your business on local directories/yellow pages
- Attend international financial cum investment expos, seminars and business fairs et al
- Create different packages for different category of clients in order to work with their financial needs as it relates to loan and interest rates
- Leverage on the internet to promote your business (when you blog regularly on key issues as it relates to your business, people would consider you an expert in the field)
- Join local chambers of commerce and industries around you with the main aim of networking and marketing your services; you are likely going to get referrals from such networks.
- Engage the services of marketing executives and business developers to carry out direct marketing
Strategies to Boost Your Brand Awareness and Create Your Corporate Identity
If you are in business and you are not deliberate about boosting you brand awareness and communicating your corporate identity, then you should be ready to take on whatever the society portrays your business to be. One of the secrets of larger corporations is that they are willing to spend fortunes year in and year out to boost their brand awareness and to continue to communicate their corporate identity the way they want people to perceive them to be.
If your intention of starting a cash advance firm is to grow the business beyond the city where you are going to be operating from to become a national and international brand, then you must be ready to spend money on promotion and advertisement of your brand.
In promoting your brand and corporate identity, you should leverage on both print and electronic media and also social media (the internet). As a matter of fact, it is cost effective to use the internet and social media platforms to promote your brands, besides it is pretty much effective and wide reaching.
Another strategy is to sponsor relevant community based programs, TV and radio programs, advertise your business in relevant magazines and newspapers. Below are the platforms you can leverage on to boost your brand and to promote and advertise your business;
- Place adverts on financial magazines and related newspapers, radio and TV stations.
- Encourage the use of word of mouth publicity from your loyal customers
- Leverage on the internet and social media platforms like; YouTube, Instagram, Facebook, Twitter, LinkedIn, Snapchat, Badoo, Google+ and other platforms to promote your business.
- Ensure that you position your banners and billboards in strategic positions all around your city
- Distribute your fliers and handbills in target areas in and around our neighborhood
- Contact corporate organizations, households, start-ups, small and medium scale business communities in the United States et al by calling them up and informing them of your organization and the cash advance services business you offer
- Advertise your business in your official website and employ strategies that will help you pull traffic to the site
- Brand all your official cars and ensure that all your staff members and management staff wears your branded shirt or cap at regular intervals.