What to Know About Getting a High Risk Merchant Cash Advance

What to Know About Getting a High Risk Merchant Cash Advance

If you want some extra working capital for your business, a high risk merchant cash advance may make the most sense. But it’s important to choose a provider you can trust. High risk merchants usually have to pay more. You want a merchant cash advance that adds to the financial health of your high risk business.


What Can a Merchant Advance Be Used For?

There are very few restrictions concerning how you spend your business’ cash advance funds. The freedom is great because it gives you the flexibility you need to make the best financial moves for your business. Here are some examples of the things you can use your high risk merchant cash advance for:

Paying your employees – Sure, this may not be the best use of a merchant cash advance, but it is allowed. You don’t want your business to depend on outside funding to meet payroll, but there are occasions when this approach make make the most sense. Using the funds of your advance can be a great solution for preventing the disruption of your cash flow while meeting your obligations.

Expanding your business – If you have the right strategy, growing your business can grow your revenue. In this case, the funds of your high risk merchant cash advance become an investment that brings in returns. Investing in business growth and expansion can be an excellent use of the funds. The best scenario is that the resulting increase in revenue more than covers the cost of the advance.

Purchasing inventory – Experiencing a sudden influx of new customers or a large order can be exciting. But it also places a lot of strain on some businesses, as they struggle to keep up with demand. If you get a high risk merchant cash advance, you may use the fund to buy the inventory required to fill large orders and satisfy increased demand.

Buying equipment – Has a vital piece of business equipment suddenly experienced a breakdown? Such a situation can halt your business activities, resulting in lost revenue. If mismanaged, it can even have a disastrous effect on your reputation. You wouldn’t want that! You can buffer the effects of a sudden breakdown or help your business operate more efficiently by using your merchant cash advance to purchase the equipment you need.

Choosing the Best Lender for High Risk Merchant Cash Advance

Getting your high risk merchant cash advance from the right lender is so important. There are very few lenders who are willing to take on the risk of lending to a merchant in your category. High risk merchants are labeled as such because their business is in one or more of the following situations:

  • Theirs is a home based business
  • The industry they’re in has a high rate of fraud or questionable legal standing
  • Their financial liabilities are large, and/or they file more than $200,000
  • The business or business owner has poor credit
  • It’s a new business or the business has a new owner

There can be other reasons why a merchant is considered high risk. When you’re a high risk merchant, getting a merchant cash advance may be your best funding option. This is because a merchant cash advance, or MCA, is based on your credit card sales, not your credit.

Funding an MCA can seem less risky for lenders, as the money is repaid through your credit card processing. It can also seem more risky to lenders than other forms of funding, since, unlike most loans and other types of business funding, you don’t have to put up collateral.

Still, you have to be careful about who you get your high risk MCA from. Already the interest rates on this type of business funding comes at a higher interest rate than a business line of credit or a traditional loan. The rates and terms should be made easy for you to understand. There should be no hidden fees or charges. Choose an MCA provider who makes providing quality customer service a top priority.

Why Hawkins for High Risk Merchant Cash Advance?

Hawkins Merchant Solutions is a broker, not a lender. Working through a broker sets you at an advantage when getting a high risk MCA. If you have a broker whose focus is on serving you and the needs of your business, they take care of all the hard parts of the process for you.

Indeed, the best way to get the best high risk merchant cash advance is comparative shopping. You would get quotes from a variety of lenders and weigh the offers against each other. Time, insight, and organization are the main challenges of this approach. It takes time to find all the potential lenders and contact them. It takes insight to wade through their terms and understand the jargon. And keeping all that information straight without overwhelming your inbox, voicemail, or desk takes impeccable organization skills – though we’re not doubting you have them.

If you’re going to apply for a high risk merchant cash advance online, be cautious. Make sure to never give your information to an organization that will sell or misuse it. At Hawkins Merchant Solutions, we only collect and use your information to find you the best cash advance offer.

Instead of flooding your inbox, we compare the best offers for you, organize them, and then present them to you either on the phone or on an online meeting. We show you the best choice, explain why it’s the best choice for your business, help you apply, and then monitor your account for you to make sure the choice remains the best option for you and your business.

When getting a high risk merchant cash advance, you want a simple process and an outcome that benefits the financial health of your business. Let Hawkins Help.

What is a High Risk Merchant Account?

What is a High Risk Merchant Account?

A high risk merchant account is a merchant account or payment processing agreement that is tailored to fit a business which is deemed high risk or is operating in an industry that has been deemed as such. These merchants usually need to pay higher fees for merchant services, which can add to their cost of business, affecting profitability and ROI, especially for companies that were re-classified as a high risk industry, and were not prepared to deal with the costs of operating as a high risk merchant. Some companies specialize in working specifically with high risk merchants by offering competitive rates, faster payouts, and/or lower reserve rates, all of which are designed to attract companies which are having difficulty finding a place to do business.

Businesses in a variety of industries are labeled as ‘high risk’ due to the nature of their industry, the method in which they operate, or a variety of other factors. For instance, all adult businesses are considered to be high risk operations, as are travel agencies, auto rentals, collections agencies, legal offline and online gambling, bail bonds, and a variety of other online and offline businesses. Because working with, and processing payments for, these companies can carry higher risks for banks and financial institutions they are obliged to sign up for a high risk merchant account which has a different fee schedule than regular merchant accounts.

A merchant account is a bank account, but functions more like a line of credit which allows a company or individual (the merchant) to receive payments from credit and debit cards, used by the consumers. The bank that provides the merchant account is called the ‘acquiring bank’ and the bank that issued the consumer’s credit card is called the issuing bank. Another important component of the processing cycle are the gateway, which handles transferring the transaction information from the consumer to the merchant.

The acquiring bank may also offer a payment processing contract, or the merchant may need to open a high risk merchant account with a high risk payment processor who collects the funds and routes them to the account at the acquiring bank. In the case of a high risk merchant account, there are additional worries about the integrity of the funds, and the possibility that the bank may be financially responsible in the case of any problems. For this reason, high risk merchant accounts often have additional financial safeguards in place, such as delayed merchant settlements, in which the bank holds the funds for a slightly longer period to offset the risk of fraudulent transactions. Another method of risk management is the use of a ‘reserve account’ which is a special account at the acquiring bank where a portion (usually 10% or less) of the net settlement amount is held for a period usually between 30 and 180 days. This account may or may not be interest-bearing, and the monies from this account are returned to the merchant on the standard payout schedule, once the reserve time has passed.

Payments to a high risk merchant account are deemed to carry an increased risk of fraud, and an increased risk of chargeback, refund, or reversal. For example, someone may use a stolen or forged credit or debit card to make purchases, or a consumer might attempt to execute an advance-authorization transaction (like renting a car or reserving a hotel), using a debit card with insufficient funds. This increases the risk for the bank and the payment processor, as they will have to deal with the administrative fallout of dealing with the fraud. Ecommerce can also be a risk factor, because businesses do not actually see an imprint credit card; they take orders over the Internet, and this can up the risk of fraud considerably.

When a merchant applies for a merchant account with a bank, payment processor, or other merchant account provider, there are many factors to consider before settling on a particular merchant provider. It is often possible to negotiate lower rates, and one should always request multiple quotes before choosing which high risk merchant account provider to use for their processing needs.

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