Another benefit of this kind of financing is that clients receive the funds they need within a couple of weeks instead of over the course of a year or more. Clients can use the money for whatever purpose they wish. For example, a broker may help a commercial client use a merchant cash advance to help finance a residential deal. The business-owner can use the cash advance to provide the downpayment.

Other uses of these funds include payments on past-due purchases or paying off delinquent taxes to increase the client's credit rating for future transactions.

An additional benefit of cash advances is that they don't show on any balance sheet or lien. Also, there typically aren't any upfront costs, application fees or closing costs, and there are never any post-closing costs. In fact, the only cost the merchant experiences is the discounted purchase of future credit card sales.

Broker benefits

So, how do brokers benefit from these transactions?

As in every lending transaction, there are costs to receiving money. Instead of points and fees on the front end of the transaction, the lender and broker receive compensation from the increased discount fee charged to the merchant on each future transaction until the advance is paid off. This is called the factor, instead of the interest rate.

There are a number of financing options to use in determining broker compensation and amount of payback to the lender. Depending on the merchant's financial needs, business growth and credit, the lender will offer several options from which the merchant can choose. Typically, the merchant receives approximately 74 cents to 80 cents on the dollar of credit card sales purchased. The remainder of the funds is used to pay the lender, as well as the broker and other intermediaries. It is common to see brokers making 3 percent per transaction, and some lenders even go as high as 10 percent in broker compensation.

In addition to monetary benefits, brokers have another product option to offer clients who need to bridge the gap in their finances. Merchant cash advances also provide brokers an opportunity to grow their relationships with bank managers, who can use this product as a source for capital when they are shy of a client's goal.

Be sure to check out different factoring companies that offer this product. If they charge upfront fees, move on.

Although this financing can be expensive to some business-owners, it can be a bargain to others, particularly those looking to acquire additional working capital, pay off delinquent debt, or fill a gap between available traditional financing and the amount sought.

Mortgage brokers who can advise their clients on this alternative source of financing will prove themselves an asset and find new ways to make money in a difficult market.

Stephen Felt has been originating residential and commercial loans since 1998 in retail and wholesale. He is a member of the New Jersey Coalition for Financial Education and is the director of business development for Creative Business Finance LLC, a consulting firm in Maple Shade, N.J. He can be reached at (856) 359-6366 or steve@creativebusinessfinance.com.

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