The business financing market offers interesting opportunities for entrepreneurs. If you dream about starting a merchant cash advance (MCA) company to expand the loan options available to small business owners, it's time to take the next step.

To ensure success, you need to understand the basic steps required to set up the venture. As a fund provider, you should determine capital requirements to ensure optimal loan disbursement capability. It's also vital to conduct thorough research about the industry and market conditions before commencing operations. This critical step allows you to identify gaps in the market.

Here's what you need to know about setting up a merchant cash advance business.

Brainstorm Your Merchant Cash Advance Company

Proper planning creates a solid foundation for your funding company. You should assess the strengths and weaknesses of your plan and formulate workable solutions. For instance, establish the minimum startup capital recommended for your merchant cash advance business. If your funds are lower than the required minimum amount, find ways to boost the working capital.

As you assess your plans, determine your company's competitiveness under current market conditions. Then, include your findings in a detailed business plan (explained below).

Create a Merchant Cash Advance Business Plan

Creating a working plan for your venture entails researching, formulating operational strategies, and drafting the document. You can use a custom cash advance business plan template to simplify the process. Parts of the document should focus on the following points:

  • Raising business funding
  • Customer acquisition
  • Debt collection methods
  • Vetting borrowers
  • Accounting methods
  • The small business loan application process
  • Revenue projections
  • The approval process

Once you've completed drafting various sections of your business plan, edit and proofread the document. Also, consider asking an experienced business consultant or a merchant cash advance business expert to review the plan and provide feedback.

Select a Target Market and Service Offerings

As an MCA provider, you cater to the financial needs of a specific target market. To serve the market sufficiently, pick a particular demographic or type of business client. Doing so makes it easier to provide lines of credit and financing options capable of helping clients meet their goals.

For instance, you can opt to provide business credit to startups or small businesses in certain sectors. Examples of lucrative sectors include retailers, restaurants, and taxi operators. Naturally, your funding company assists entrepreneurs who can't access funds through traditional small business loans or bank loans. However, you should also choose service offerings or a specific type of financing product to help your MCA stand out.

Calculate Operating Costs

Whether you plan to operate in New York or other locations, you'll need to determine operating costs from the onset. Your venture requires considerable capital upfront to provide cash advance loans to clients who have specific business needs.

Additional costs include office supplies, utility bills, marketing costs, and salaries if you plan to hire employees. These requirements must appear in the MCA's business plan to ensure clarity. Also, indicate the qualifying criteria for clients requiring short-term loans. For more information on calculating startup operating costs, visit the Small Business Administration (SBA) website.

Identify Potential Challenges and Solutions

As with any type of business, the microlending sector comes with challenges that require practical solutions. Offering unsecured loans creates the potential for customers to default. You need to identify viable ways to deal with bad credit to maintain good business. Additionally, you may face intense competition from established lenders in your area.

Some competitors may offer lower interest rates to attract clients. In turn, you need to formulate more innovative ways to boost competitiveness and cash flow. Consider tweaking the cost of your business financing products to distinguish your merchant cash advance company from the rest.

Setting Up Your MCA Company

At this stage, you should gather various documents for your startup to ensure a smooth registration. Also, choose the ideal business name, obtain permits and licenses, take out insurance, and open a bank account. Register the merchant cash advance business for taxes and obtain state and federal tax IDs.

Establish Your MCA Business Legally

As you set up your business, determine the right business structure to suit your needs. The available options include a corporation, general partnership, sole proprietorship, and limited liability company (LLC). Most small businesses, including MCAs, opt for the LLC structure due to tax flexibility, limited liability, and other advantages.

As a lender, you need to protect yourself from legal liability without the complexities of a corporation. To make the right choice, determine whether you want to invite partners in the business and your preferred tax return filing option. For instance, single-member LLCs and sole proprietorships file personal tax returns.

Obtain the Required Permits and Licenses

Federal and state regulations compel businesses of varying sizes to obtain permits and licenses. City and county authorities may also issue localized permissions to companies. Therefore, identify the required permits for your venture. For instance, if your merchant cash advance business operates a physical location, you or your landlord must obtain a certificate of occupancy.

Local authorities also regulate the use of residential properties for commercial operations. Thus, you'll have to comply with zoning ordinances if you plan to operate from home. As a financial services firm, you may need additional licenses to offer loans to individuals and companies. Failing to obtain the necessary permissions can have dire consequences for your venture.

Get Business Insurance

Business insurance ensures worry-free operations and helps you comply with regulatory requirements. Taking out a policy is a practical way to safeguard the financial well-being of your merchant cash advance business. The right coverage can protect your office equipment, visitors, and employees. Liability insurance is ideal for small businesses, including your MCA company.

Most states compel companies to obtain workers' compensation coverage to protect employees in the event of accidents. Slips and falls are common in the workplace.

Familiarize Yourself With Tax Requirements

Depending on your chosen business structure, you may need to apply for an employer identification number (EIN). The federal tax ID is useful for filing taxes and opening business bank accounts. Once you receive an EIN confirmation letter for your merchant cash advance LLC, corporation, or partnership, you're ready to provide business loans to clients and file tax returns based on your annual earnings.

States have varying tax requirements. The first step to maintaining compliance is to adhere to standard bookkeeping practices. Thankfully, Skynova's accounting software helps you keep accounting records as required by the law. You can record loan amounts, annual revenue, repayments, and other MCA transactions.

Market Your Cash Advance Business

To compete favorably, you should identify the right marketing channels for your cash advance business. A combination of traditional and digital marketing campaigns can generate a constant supply of leads. Some viable ways to market your loan services include:

  • Pay-per-click (PPC) or online advertising
  • Social media marketing (LinkedIn, Twitter, and Facebook)
  • Television advertising
  • Cold calling
  • In-person networking by attending business expos and seminars
  • Content marketing via your website and third-party platforms (including press release portals)

Set Up Google My Business and Build a Website

Having an online presence is vital to the success of today's businesses, including cash advance providers. Platforms like Yelp and Google My Business make it easier for potential customers seeking loans to find your company.

You should also bolster your company's internet presence by building a well-designed website. Your website can serve wide-ranging purposes, including showcasing your business financing products and communicating with borrowers. Content management systems (CMS) like WordPress simplify building a website.

Connect With Potential Customers via Social Media

LinkedIn is a fertile ground to find business owners looking for short-term loans. The platform provides advertising and marketing features to help you to connect with the right users. Other social media platforms capable of boosting your merchant cash advance's online visibility include Facebook and Twitter.

Running Your Merchant Cash Advance Business

To ensure operational efficiency, you need software that streamlines tax filings, record keeping, credit card processing, auditing, debt collection, and payment tracking. Skynova offers software products capable of handling many of these functions. By relying on Skynova's accounting solution, you can track payments and streamline your record keeping.

You can count on Skynova's solutions to simplify record keeping for future credit card sales, ACH payments, and debit card payments.

Take Your Cash Advance Business to Greater Heights

Whether you want to run a cash advance business as a single owner or with one or more partners, you should conduct thorough market research and feasibility studies. Also, invest in the right digital solutions to handle daily credit card sales, upfront loan disbursements, and other critical processes.

Skynova is an all-in-one software as a service (SaaS) platform that simplifies various transaction handling tasks. If you want to discover how our accounting software can benefit your merchant cash advance company, get in touch with us today.