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Education

Best practices in New MCA providers may have to spend a little bit of
time coming up with their own lending standards. This
alternative finance means thinking long and hard about what makes a good
borrower. It's also essential to keep in mind that once they
have standards that seem to be profitable and deliver
returns, they need to stick to them.
By having set lending standards in place, it is much more
likely that a provider will lend cash to a business that can
reasonably pay it back.

Don't just lend to any business

Companies enter the MCA industry all the time. However,
very few survive. This is because many new MCA
providers lend to almost everybody. This is a bad practice
and one that absolutely needs to be avoided.

By Chad Otar MCA providers need to make it a practice to say no to risky
Lending Valley borrowers. Contrary to popular belief, the profit margins
in the MCA business are not all that high. This is because
roviders of merchant cash advance (MCA) ser- the cost per customer acquisition is huge.
vices are involved in one of the riskiest types
of alternative finance. This is due to the way in This means providers should avoid handing cash to
P which repayments work. If the provider fails to businesses that do not meet their risk analysis standards.
correctly predict card sales for the borrower or the mer- In many cases, this means only lending to established
chant goes out of business, the provider of the MCA will businesses.
be left out of pocket. Do keep in touch with your customers

Therefore, for businesses involved in the alternative It is vital for MCA providers to keep in touch with their
finance industry, particularly merchant cash advances, it customers, particularly when the customer doesn't seem
is important to understand the best practices for offering to be meeting the projections for repayments. By making
this type of borrowing. it a standard practice to keep in touch with customers,
the MCA will be able to stay on top of the reasons why
Do learn how to analyze risk the money is being returned a little bit slower than
Risk analysis is a fundamental practice in alternative anticipated. An experienced MCA provider may even be
finance. MCA borrowing is risky at the best of times. able to provide assistance to get the repayments back on
This is because there will be no set repayment cycle on track.
the borrowing. Thus, an MCA provider needs to know
how to analyze the risk of various companies. This means Many MCA providers also report that by keeping in touch
considering the borrower's: with their customers, the customers will be less likely to
cause issues. They may even be more likely to use the
• Credit history services again.
• History of sales receipts Alternative finance is a risky business. It becomes even
• Location for example, if they are in a place that is riskier when a provider doesn't take steps to mitigate their
currently going through a depression or a boom) risk when lending. All it takes is employing a few of the
• References best practices, and MCA providers can become profitable
companies.
With larger amounts of borrowing, an MCA provider may
even want to carry out site visits before approving the Note: I referred to the following while researching for
lending. this article: https://docplayer.net/10416697-Best-practices-for-
merchant-cash-advance-providers-assessment-of-risk.html and
Do have set lending standards https://fundbox.com/resources/guides/merchant-cash-advance/
.
A good MCA provider will have a rigorous set of lending
standards in place. You can think of this as a checklist to Chad Otar is CEO of Lending Valley Inc. For information about the
help determine whether a business can receive a merchant company, please visit www.lendingvalley.com. To reach Chad, send an
cash advance. email to chad@lendingvalley.com.
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