Question: What’s the difference between a broker and a direct lender in the merchant cash advance business?
Answer: As the merchant cash advance industry gains momentum here in Canada, we’re seeing more and more companies pop up every day. One of the most important questions to ask when you first speak with a merchant advance provider is whether they’re a broker or the direct lender. There is a big difference between the 2 and while the majority of websites out there appear to position themselves as direct lenders if you look closely, about 90% aren’t doing the actual funding. They are essentially call centres, generating leads and passing them along to companies who provides the funds.
After a merchant cash advance provider assesses the amount a client is looking for, the amount they actually qualify for and risk involved, they come up with a price based on that assessment. They then factor in any additional costs to come up with a final price for the client. Additional costs may vary company to company but one of the biggest additional costs are brokers. At the end of the day, you’re adding another person who needs to get paid which drives up the cost for the client.
Treat a merchant cash advance the way you would treat any other large purchase. Do your research to get the price and terms which will work best for both you and your business.