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Global eTelecom Inc., a Destin, Fla.-based check processor, is using merchant cash-advance services from Professional Merchant Advance Capital LLC, a company that includes check transactions when calculating how much money to lend merchants.
Most cash-advance companies limit the amount of credit they extend by basing the amount on the merchant's anticipated credit card receivables. Merchants receive the money in exchange for payments taken from a settlement account.
Global eTelecom resellers pitch the services to merchants and collect a commission on the initial advance and on renewals.
David Petry, director of sales and marketing at Hauppauge, N.Y.-based Professional Merchant Advance Capital, tells ISO&Agent Weekly that ISOs can use any transactions that processors can handle electronically, including automated clearinghouse and electronic benefits transfer transactions.
Unlike credit card receivable-based lending, the system does not rely on the advance company to work with a payment processor to ensure the merchant repays the funds. Instead, the merchant must establish a separate escrow account, Petry says. Professional Merchant Advance Capital withdraws its repayment from the escrow account while the merchant retains the rest of the funds in that account.
The merchant uses the escrow account's deposit tickets to ensure the funds are settled properly, Petry says. Most merchants use remote deposit-capture systems for the escrow accounts, he says.
ISOs could sell check-imaging products and processing services in addition to the cash-advance service, Petry says.
Petry says agents make an upfront commission on the initial sale of the advance, and then they draw a smaller percentage of the overall value of the advance as a residual until the merchant repays the advance. They also earn a renewal commission.
Christian Murray, Global eTelecom director of business development, says this is his company's first cash-advance offering. Global eTelecom offers only check-processing services to merchants.
"Everyone can do funding on credit card receivables," Murray tells ISO&Agent Weekly. "That's pretty much mainstream. What's different about this is it allows for nontraditional business to get cash advances. It takes our check products into markets where it's a valid match."
For example, companies use checks for business-to-business transactions and property management, he says. "This gives them more options to get funding, rather than just using credit cards."
Most merchants that choose the advance also likely will use Global eTelecom's check imaging and back-office processing service, which requires a check-imaging terminal.
Murray says agents could earn a "dual income" from check-based cash advances, with one part coming from the residuals of check processing and the other part from the cash-advance product.
Typically, check-imaging services pay agents 20 to 60 basis points per transaction, Murray says, which can be good for check products.
David Fish, senior analyst at Maynard, Mass.-based Mercator Advisory Group Inc., says he knows of no other vendor that includes check transactions in merchant-cash advances.
"That doesn't necessarily mean there aren't other [cash-advance companies] already thinking along these lines, or doing it," Fish tells ISO&Agent Weekly.
One merchant cash-advance competitor, Kennesaw, Ga.-based AdvanceMe Inc., says it will continue to limit its advances to credit card receivables because it sees too much risk in including checks.
"We gauge the size of the advance, in general, to the margin associated with that business' [Standard Industrial Classification] code," Mark Lorimer, AdvanceMe chief marketing officer, tells ISO&Agent Weekly. The federal government uses the codes to categorize businesses as a means of measuring the economy. Lorimer says AdvanceMe lends merchants no more than 9% of their gross revenue. In some instances, the company limits the advances to 1% or 2% of gross revenue, depending on its Standard Industrial Classification code.
Exceeding those percentages increases the risk that a merchant may wind up with payments that absorb much operating income, Lorimer says.
Moreover, ISOs have not been asking AdvanceMe to include check transactions, he says. "I don't see that in our near future," Lorimer adds.
