Merchant Cash Advances

Gearing Up For The "Other" Spending Season

2012-12-01T15:54:00.001-08:00

The Holiday Season for 2012 is turning out to be much better than expected for our retail clients. Initial reports are showing improvement in sales at approximately 15 percent higher than 2011. Many of our sales partners successfully capitalized on this and added a large number of retail businesses in the 3 Quarter and beginning of 4th Quarter to their client portfolios. American Finance Solutions saw strong demand for working capital as retailers stocked up on inventory and took advantage of pricing discounts by pre-paying for their orders.

Now, many are relaxing and getting ready to enjoy the holidays themselves! Well don't relax too much. Historically December and January have been record breaking months for the merchant cash advance space as seasonal businesses get ready for their busy Winter seasons.

Obviously our sales partners will not have much success marketing to retailers you a flush full of cash. Now is the time to mix up the marketing and target these seasonal businesses that have a real need for working capital. A list of the obvious includes the following, but many, many more exist for those that want to get creative:

Anything to do with alpine winter sports
Snowmobile repair
Snowplow services
Chimney sweeping
Warm climate tourist and hospitality (think Florida!)
Florists (Valentine's Day, Mothers Day always seems to come sooner than expected)
Bowling alleys in cold climates
Tax services

Now when targeting these businesses most finance companies are going to want to see a full year's worth of bank and processing statements. Make sure you get those up front from the client. It is always easier to get the information for pre-approvals the first time. Explain to your clients that the funding company will be able to more accurately determine cash flow for repayment and offer the client the best terms going into a busy season. Many will be surprised by the relatively inexpensive offers for these types of clients.

As always, AFS looks forward to receiving your client application and funding your deals in record time.

Some Small Businesses Embracing Economic Recovery

2012-11-24T10:37:00.003-08:00

The National Federation of Independent Business and National Association of Manufactures recently released their 3Q Survey on the opinions and state of the economy.

The good and the bad news is that 35% of small businesses agree with the statement "my company is now operating for the standpoint that there is enough economic opportunity in the market today to expand, grow or hire new workers." This is good, since 35% (over one third) of businesses see the light at the end of the economic tunnel. This figure indicates large increases for previous surveys, especially those from 2011.

The bad news is that the increase is not as large as most had hoped for. While the number show improvement, it continues to show that things are slowly (very slowly) starting to improve. If you take the time to read through the survey, the majority of reasons for business owners not wanting to expand is Federal, State and Local government policy, taxation, regulation and uncertainty. These were the number two and three reasons for not investing or expanding business behind employee health care costs.

For what I can remember as a first, small business owners reported that they felt both China and India were more supportive to entrepreneurship than the United States! We at American Finance Solutions hear the same through our client base for both old and new. Across all geographic and industry types, business owners just want to know with some level of reasonable confidence what the future has inshore on both a Federal and local level. Most have lost their faith in the political system, no matter what party they belong in, to operate efficiently and come up with some type of economic plan.

This same uncertainty also plagues mainstream financing such as banks, traditional asset-based lenders, etc, keeping demand for alternative lenders such as merchant cash advance filling the need for the 35% of small business that see the light. With this increase demand the MCA space will see continued new products with customized rates, terms and other attributes to fulfill specific niches.

As always, American Finance Solutions, continues to provide financing to Main Street by putting the client first and custom pricing each contract to meet each client's individual needs and help them reach the light!

Housing Recovery Opens Up The Door For Home Improvement

2012-10-20T07:27:00.000-07:00

Traditionally the home improvement industry has been on many Merchant Cash Advance funding companies prohibited list. Especially the "old timers" that have been around since pre-2008 when the economic downturn started. This industry got absolutely hammered resulting in very high default ratios.

Across the country the housing recovery is starting to happen. The first homes that are being purchased are the foreclosures, auctions and short sales and these homes need the most "home improvement" to get them back in livable or rent able condition. Typically this requires the services of the following:

Plumbers
Flooring
Painters
Kitchen re modelers
Stone and masonry
Pool and spa
Heating and air conditioning (HVAC)
Window and garage door replacement

Business that survived in home improvement and construction are now experiencing strong demand and are in search of financing to fund raw materials for their jobs. For those business owners that survived and have decent operations now is the time to take advantage of the market and make up for the previous lean years.

Here at American Finance Solutions we have been ahead of the curve and been financing these business types over the past 24 months. In fact these industries are turning out to now have some of the lowest default rates as well. Clients in this segment will need to be somewhat established with a 24 month track record, but only a 500 minimum FICO is required, and the provide 12 months of bank or credit card statements since in many areas of the country their business is seasonal.

As always, AFS looks forward to assisting both our clients, partners and agents will financing solutions that are merchant-centric and building long term value.

Over 40 Percent Of Small Business Owners Plan On Investing

2012-10-12T07:34:00.003-07:00

Wells Fargo just recently release a Gallup Report that small business owners' outlook on capital expenditures is unlikely to change before the presidential election in November, given the massive uncertainties in the US economy. It also indicated that small businesses are approaching 2013 very cautiously.

The survey found that while 41 percent of them are planning on making capital improvements, this level is 12 points lower than they made in the past year. One highlight is that most will investing in new equipment. Over a majority, 57 percent to be exact, stated that they will not be making new investment into their business next year.

The Gallup report said "small business owners as they consider making capital investments over the next 12 months are consistent with the overall decline in owner optimism since April. Then also seem consistent with the slowing of the overall United States economy as well as declining economic confidence and a worsening unemployment situation."

For our valued partners and resellers of our financial products this report may seem doom and gloom. However, while the decline in our client base outlook is not good, it does show that over 40 percent of our client base will be very receptive to financing offers. In addition, focus you pitch on getting new equipment to meet the majority of their needs to keep you sales pipelines full!

AFS Recognized As One Of The Fastest Growing Private Companies

2012-10-07T18:03:00.001-07:00

American Finance Solutions, one of the fastest growing merchant cash advance companies for small and mid-sized businesses, was named the 24th fastest growing private company in Orange County, California by the Orange County Business Journal for 2012. We achieved this with dramatic revenue growth of 272.5% in the past two years and an increase in employee headcount of 70%.

We have proven ourselves again as a key financial resource for small businesses often overlooked by traditional banks, which often only examine assets and personal credit scores. AFS applies a holistic approach to determine the funding amount, based on a small business’s overall health. Using its proprietary pricing and risk algorithm, AFS creates custom-tailored, low-risk funding programs for each merchant.

The Orange County Business Journal’s recognition of AFS is a attribute our strong growth to our talented team who provide exceptional ‘white glove’ customer service and transparent counsel for our merchants. This accolade further validates our merchant-centric solution to helping small businesses secure capital and grow.

The list ranked 154 private companies based in Orange County by revenue growth over two years, from June 2010 through June 2012. Each company had minimum sales of $300,000 for 12 months through June 2010. The list includes only privately held companies, those owned by individuals, families, private equity or other investors.

Manta & NFIB Surveys Indicate Dropping Small Business Confidence

2012-09-30T22:05:00.002-07:00

The majority of small business owners remain optimistic about the post-presidential economic outlook, but not as optimistic as they were 3 months ago. According to surveys conducted by Manta in May and August 2012, the amount of small business owners who have an optimistic outlook regarding the post-presidential election economy has declined 6% in the past three months (65% in May vs. 59% in August).

NFIB Survey Shows Small Business Owner Optimism Declining, Again!

The National Federation of Independent Business (NFIB) Small Business Economic Trends monthly survey results for July saw small business owner optimism drop for the third straight month. In April 2012, small business owner optimism was equal to the highest level it had been at since December 2007; however, in the three months since, optimism levels have declined to the lowest levels since November 2011.

MCA Versus Bank Approval Rates

2012-03-10T07:47:00.003-08:00

Small-business loan approval rates by community banks and non-bank lenders spiked in January to their highest levels in the past 12 months, according to the monthly Small Business Lending Index, which analyzes loan applications through Biz2credit.com, which connects borrowers with more than 1,100 lenders nationwide.

This is obviously due to the strong demand that all alternative lenders are seeing in the marketplace. At American Finance Solutions, we have experienced a large spike in applications in the first quarter of 2012. Most of our competition is seeing the same as well.
Alternative lenders in particular -- Community Development Financial Institutions, accounts receivable financing companies, merchant cash advance companies, micro-lenders and others -- approved more than two-thirds of applications from potential borrowers according to Biz2credit. That compares with the approximately 47.5% of loan applications approved by small community banks and just 11.7% approved in January by banks with more than $10 billion in assets, Biz2Credit says.
So, I think an agent or funding company can safely say that MCA approval rates are well North of 70% compared to bank approval rates of approximately 12%. At AFS we also believe that the amount of capital that a business owner receives is also much higher with a merchant cash advance.
"Over the last three and a half years, a lot of banks have shrunk their branch network. That has disrupted the old relationship dynamic and created a huge vacuum in the market for working capital for businesses to run their day-to-day business," Biz2Credit CEO Rohit Arora says. That led to the rise of alternative lenders. Initially it was some of the CDFIs, micro-lenders and credit unions, types of lenders without much experience in such things as cash advances and factoring, Arora says.
"Over the last year what we are starting to see is that kind of funding is coming from more mainstream lenders because of all these different reasons. It is also creating the pressure on the banks and other institution to go out and start lending again to businesses," Arora says.
While there is definite pressure on big banks to open up their vaults, we do not expect any significant changes until well into 2013. Its a great time to be marketing the Merchant Cash Advance product and building a client-base!

Small Business Failures Up 48%

2012-02-25T09:56:00.005-08:00

The number of small businesses going bankrupt jumped by 48 per cent over the last 12 months according to Dunn & Bradstreet. More alarming is that small business start-ups fell by 95 per cent over the same period.

Dun & Bradstreet's analysis found that across the economy, business failures were down 10 per cent on the September quarter 2011, but up more than 40 per cent for the year. This coincides with Dun & Bradstreet's downgrades during the December quarter of more than 128,000 firms that are likely to experience financial distress over the coming twelve months.

According to Dun & Bradstreet CEO, Christine Christian, business failures have trended steadily upwards since 2008, growing over 30 per cent in the last three years.

You'll notice in the D&B supplied graphic that the segment of MCA-target market (businesses with less than 20 employees) has seen the greatest hit in business failures.

Key findings of the D&B Business Failures and Start-ups Analysis for the December quarter 2011:

Nationwide, insolvencies rose 42 per cent year-on-year while the number of new businesses fell 11 per cent over the same period;
Small business failures grew 57 per cent over the year among firms with less than five employees and 40 per cent over the year among firms with six to 19 employees;
Small business start-ups among firms with less than five employees fell 95 per cent in the year;
Start-ups during the December quarter in the manufacturing, service and finance sectors fell by nearly 100 per cent.

This type of data will continue to keep the big banks out of the small business financing arena. Which is good for Merchant Cash demand. However, if a current client or agent selling the MCA product, you have to be concerned with the stability of your current MCA funding company. A few recent failures/reorganizations by a some mid-sized funding companies are just the start of more to come.

Ask the difficult questions of your funding partner? What is their source of funds? What are their delinquency rates? How long have they been funding for? The more experience, the better the funding company is at measuring risk and pricing across their portfolio of contracts for long-term profitability and sustainability.

If you sense you're getting the run around when asking the above, you better start running in the other direction!

As always, American Finance Solutions is here to fund our clients and ensure our resellers/partners are always compensated!

2012 Outlook For Merchant Cash Advance

2012-02-16T09:10:00.000-08:00

2012 is definitely shaping up to surpass 2011's record sales pace. Not only will the demand continue, according to the latest market surveys we expect it to increase dramatically. The latest Wells Fargo/Gallup Small Business Survey conducted in January shows that small business assessments of the US economy grew to its highest mark since before the financial crisis hit in 2008. Most importantly this renewed optimism coincides with other improved economic news, such as lower jobless claims and higher equity markets.

Strengthening revenues, both in the current and future expectations of business owners will greatly influence small business's upcoming decisions about investment, hiring and most important for us financing. While a net percent of companies reported a decrease in capital expenditures over the past 12 months, the gap has been narrowing.

Specifically, small business expecting to hire mew employees over the next year jumped from 15 percent to 22 percent, while the number of small business expecting future employment to decrease fell to its lowest rate since the 2007 recession began. FYI, our MCA client-base, businesses with less than 50 employees account for nearly half of the total expected employment!

The other factor that will drive demand is the Federal Reserve's renewed commitment to keep the cost of borrowing at record lows for all of 2012. This means almost guarantees that traditional lending will continue its severe constriction. Many expect the Fed to keep rates low through 2013 and even into 2014.

For 2012 we'll have the best of both worlds with the same supply constraints of 2011 coupled with drastically increasing demand. If you thought 2011 was a good, hold on because 2012 will be great!

As always, we look forward to funding all of your deals, and a prosperous New Year.

AFS Opens East Coast Office

2012-01-29T07:21:00.000-08:00

AFS is proud to announce that after five years in sunny Los Angeles, we have finally opened our first East Coast office. More importantly, we have added another valuable member to the AFS team.

We are pleased to announce that Mike Steeneck, an industry veteran with years of experience in the payment processing and alternative funding arena has joined AFS as Vice President of Business Development. Many of you know Mike from his last position as EVP/COO of OnePay. Mike has also held positions as President of Business Development at AdvanceMe and Senior Vice President of Sales and Acquisitions at First Data where he successfully launched many newly formed business units.

Mike's focus will be on building relationships with East Coast ISOs and processors nationwide. In addition, Mike will be instrumental in crafting sales strategy and product development as AFS enters new markets and diversifies its sales channel. Most importantly, Mike will work closely with our existing and new ISO partners to increase sales and help AFS build on its reputation as the funding source of choice.

Mike brings tremendous experience and expertise to AFS and we're thrilled to have him. Mike can be reached directly at 800-760-5516, ext 141 or by email at msteeneck@americanfinancesolutions.com

Tis' The Season For MCA!

2011-10-02T18:13:00.000-07:00

The Fourth Quarter holiday season is finally upon us! Starting in October you'll begin to hear the seasonal songs in every mall across America. If you are an Agent or Reseller of Merchant Cash Advance now is the time to boost your marketing and target retailers and other merchants that benefit from the Holidays.

Banks still have their coffers shut to small business according to the Wall Street Journal and business are curtailing on spending. This will mean that the majority of MCA business will be seasonal as most businesses will be reluctant to take on new debt. Here's a couple of tips to make the most out of this opportunity.

1. When targeting these merchants, get 12 months of processing statements! American Finance Solutions will use the upcoming months for payback calculations. This will allow you to obtain pricing that maximizes funding amounts or lowers factor rates since expected payback times will be shortened.

2. Maximize Fast Cash deals! With our Fast Cash program, AFS funds in 48 hours most of the time (some deals take 72 hours since we are waiting on the merchant to download with a new processor). Now that merchants qualify for 50% of their processing average, we can use the foretasted four months going into season, rather than the previous four months.

3. Don't forget about non-retailer merchants. There are so many other merchants that benefit from the Holiday Season! E-commerce are great target market that AFS funds when established. Day spas sell tons of gift certificates! The list is endless, think outside the box and you'll be rewarded!

We look forward to funding all of your deals and filling up your stockings with cash.

American Finance Solutions Official Media Sponsor Of WSAA

2011-09-18T09:15:00.000-07:00

American Finance Solutions is proud to announce that it is the Official Media Sponsor of the 2011 Western States Acquirers Association. This year's conference will be held at the San Francisco Hyatt Regency in Burlingame, California on September 21st and 22nd.

The two day event features the Field Guide for ISO's Seminar and tons of breakout session focusing on the future of the payments industry. Marketing with Social Media, Mobile Payments and International Markets will all be highlighted. In addition, there will be plenty of time to visit with vendors and sponsors during breakfast, lunch and cocktail sessions.

AFS will be using the venue to launch its new Agent Portal, enhanced Fast Cash funding program offering $20,000 in 48 hours for merchants without personal credit pulls and an industry first equipment-secured Merchant Cash Advance with low factor rates starting at 1.15.

Make sure you stop by and see us if attending.

Welcome To New North American Merchant Advance Association Members

2011-09-10T12:13:00.001-07:00

American Finance Solutions welcomes the addition of five new members to the North American Merchant Advance Association (NAMAA). The recent addition increases the amount of total companies by almost 50 percent and now NAMAA includes almost all reputable players in the industry. The one lone dissident continues to be Advanceme.

Now if you're selling or marketing merchant cash advance or work for a funding company, you may be asking yourself, "What's the big deal?" There are quite a few reasons why this is significant step for the whole industry:

1. Robust "bad merchant" database - If you sell the product, the first thing NAMAA members do when receiving an application is check it against the database. This saves you and your staff from wasting time and resources on known fraud and defaulted merchants.

2. Unbiased communication lines between funding companies - All NAMAA members have made a pledge to exchange true information on merchants and play fair. So often when American Finance Solutions calls a little player for a payoff amount confirmation, we get the run around. Mean while the small funder is desperately trying renew the client immediately. NAMAA members all have a designate contact that gives the real scoop on a client (weather they were even in collections, slow pay, etc) and don't compromise the payoff process. This means if you're selling for one of the companies, you don't have to worry about losing a deal at the 11th hour.

3. Best practices are adhered to - Knowing that you represent or work for a NAMAA member company, you can confidentially market this to your clientele and assure them that you represent a reputable industry player that conducts business ethically.

I believe this marks a turning point for the MCA industry. We've have officially started to move out of the early growth stage and are also quickly beginning to move into the mainstream financial marketplace.

Again, welcome to Strategic Funding, Genesis, Merchant Advance Funding, Merchant Capital Source and Swift Capital.

Let The Second Selling Season Of 2011 Begin!

2011-09-05T13:02:00.001-07:00

Now that the kids are back in school and Summer vacations are over, it time to gear up for the Merchant Cash Advances second selling season of the year! Historically the Spring and Fall have turned out to be the prime sales seasons and we are expecting the same for 2011.

More than ever, merchants have the upper hand over suppliers when they have cash. Many of our existing clientele are renewing to take advantage of opportunities. Many are receiving large discounts or other incentives by pre-ordering and paying in advance.

One of our retailers reported a savings of 40%. He pre-paid for this October and November deliveries and is receiving $20,000 of clothing. Given that his mark up is 100%, that means he'll generate $40,000 in sales for a total cost of $15,600 ($12,000 plus the $3,600 in factoring fees). Now that's a smart use of a Merchant Cash Advance!

Restaurants are reporting that they are getting similar concessions from their liquor distributors. Gift and novelty shops are reporting discounts of approximately 30% for pre-ordering and of course speciality toy and hobby stores are squeezing their suppliers for 30% to 50% discounts. If you're marketing and selling MCA, now is the perfect time to adjust your target market and message to capitalize on this selling season. Don't forget to focus on the right types of business and who their market demographics are as well. You want applications from merchants that have the highest chance of getting approved for funding.

At American Finance Solutions, we expect more record funding months in our busiest season. Both high- and low-end retailers should benefit the most in our current macro-economy; and be the most attractive to AFS and other funding companies. (Those with money will continue to spend at the upper-end, while the rest of us move down; and the middle retailers will really feel the squeeze this holiday season!)

Latest Experian Business Benchmark Report Confirms That We're Bouncing Along The Bottom

2011-08-28T09:51:00.000-07:00

Last week Experian released its 2nd Quarter Business Benchmark Report. The report reveals nothing unexpected and confirms that our US business climate continues to bounce along the bottom of a recession recovery. American Finance Solutions and other MCA funders play close attention to these trends to make subtle adjustments to their pricing calculators for risk and expected pay back of contracts.

Overall most businesses became somewhat more delinquent on their debts and are stretching out their days-beyond-terms. As for relevancy to the Merchant Cash Advance was the discrepancy between business size. Large business, defined as those with over 1,000 employees, had a huge increase in delinquency. Obviously, these types of business are not MCA clients. Small- and medium-sized businesses either improved their delinquency or had a minimal decline.

The report also reports delinquency by business type. Merchant Cash Advance core business types also had minimal changes to delinquency ratings. Hospitality, retail & services all continue to show steady as she goes, with neither improvement or decline in financial health as sectors.

What does this all mean for our Merchant Cash Advance industry? The trends of increased demand will continue for the short- and medium-term. Risk to funding companies, such as American Finance Solutions, on a whole should see slight improvement. Expect smart industry players, (agents, resellers and funding companies) to aggressively capitalize on a great opportunity to build revenue and market share.

As for pricing, I expect to see little change as demand pushes up some and the continuation of low bad debt will allow funding companies to cut margins some to increase volume. The two should offset each other.

It continues to look like merchant cash advance will be a strong and viable industry to provide small- and medium-sized companies with working capital! As always, American Finance Solutions looks forward to funding all your contracts.

American Finance Solutions Launches New Franchise Working Capital Program

2011-08-20T10:11:00.000-07:00

At American Finance Solutions, we recently launched a new Fast Funding program for franchise owners. In the first week the program has been very successful with $500,000 in funding of working capital and another $600,000 in the due diligence phase. Even better than the funding amounts has been the client reaction to the speed of funding. All contracts were funded within 72 hours of receiving contracts back from clients (with required supporting documents of course).

To qualify for the program the business owner needs to own and operate a known franchise. Be in business for at least one day, have or expect credit card processing of at least $5,000 per month, not be behind on rent/mortgage/franchiser fees for more than 30 days, not be in bankruptcy proceedings personally or for the business and have a personal FICO score over 500. So almost all franchises qualify!

Details of the funding programs are as follows:

1. Funding amounts available from $10,000 to $200,000 per location
2. Factor rates range from 1.2 to 1.35 with up to 12 month expected payback
3. Split, lock box and a fixed ACH payback are all available and are the merchants choice (of course ACH requires clean bank statements)

4. Must submit franchisee agreement with contact info, otherwise all normal documentation is all that is needed (business license, voided check, 2 months bank account statements and drivers license for all owners)

If you own a franchise and are looking for working capital at reasonable rates, please give us a call. Or if you are an agent or reseller for Merchant Cash Advance, then give us an email or call at American Finance Solutions to learn more about becoming a partner.

Which Businesses Agents Should Target In An Economic Downturn

2011-08-08T07:55:00.000-07:00

As our economic times get more challenging again, the demand for the Merchant Cash Advance product and other alternative sources for working capital will see great increases in demand. If you are selling the MCA product its a great time to seize this opportunity and build your client portfolio. The key will be targeting the right clients that will have the highest chance of getting approvals from American Finance Solutions and other funding companies.

By crafting and targeting your marketing effort you'll greatly increase your return-on-investment for your marketing dollars. Put yourself in the funding companies shoes. Which clients would you want to put your capital at risk with?

1. Recession Proof Businesses are the obvious choice. Just a few of them are:

Low Ticket Restaurants - People still eat out in tough times, they just go to restaurants that they can afford. The middle market (entree price of $12 to $20 will get crushed once again).
Auto Repair - People cannot afford a new car, but will plow a few extra bucks into their current vehicle to keep it running.
Health Care - Dentists are a great example of how medical is generally recession proof. Nothing else makes a client whip out their credit card faster than pain avoidance!
Liquor/Tobacco Stores - Vices are usually the last thing one gives up, enough said.
Convenience Stores - When people feel poor (or less wealthy) they'll avoid big trips to the supermarket where they outlay $200 and opt for spending $40 with frequent stops a the local C-store.
Mini-Escapes - Day spas and nail salons thrive during these times. Instead of spending a weekend at the shore, they do a spa day for the ladies why the guys hit the links (we absolutely love funding golf courses at AFS!)

2. Established Businesses

Obviously a business with a multi-year track record and established clientèle is much more attractive.
Clients using funds to take advantage of opportunity of buying a competitor or taking over the space of a failed rival.
Business where the owner also owns the real estate have much more skin in the game as compared to those that lease. At AFS our risk-based pricing gives major points for this!
Steady sales for a client goes a long way with funding companies. A business that consistently does $20,000 a month is much more desirable than the one that fluctuates wildly.

By utilizing the above targets and executing efficiently (closing) you'll maximize the most from the current opportunity in the MCA space.

Not Just Surviving, But Thriving In Recession

2011-08-06T18:00:00.000-07:00

Unfortunately what is bad for the overall economy ends up being good for the Merchant Cash Advance industry. When the economy starts shrinking, traditional lending sources start drying up quickly, and when available the cost goes up. That forces those that need capital to turn to alternative sources.

The political events over the past week coupled with the stock market realizing the reality of the American economy has us in store for our second dip in the waters of economic recession, in my opinion. With unemployment (true unemployment is definitely above 15% and if you want estimate under/unemployment some experts are quoting 20%+) showing no signs of recovery, government stimulus spending coming to end and definitely more foreclosures in residential real estate (and the shoe hasn't even begun to drop in commercial!); its hard to refute that the next 18 months will be tough.

The end result will be significant growth for alternative lenders with Merchant Cash Advance and its ancillary products thriving. The number one reason will be pure demand and lack of suppliers. Obviously the demand will be there just as it was in 2008 when the last recession started. However, I believe the suppliers will not come rushing in as they did previously. You need dump trucks full of cash to become a serious player in this market and if you think its tough raising money for your traditional business or hot Internet start up. Imagine going out to the capital markets and saying, "I need cash to finance working capital in the sub-prime, small-business market and oh yeah, most of my clients are sub-700 FICO with no assets."

Another reason is that MCA will thrive is that funding companies will be able to easily pass along their increased cost of capital to their clients. With a typical factor rate now being 1.32, its not that difficult for a client to swallow 1.35 at the same terms. Even if real interest rates double or triple, I expect the effects to be negligible.

The key will be the qualification and underwriting criteria that the funding companies follow. In 2008, the MCA landscape was like the Wild West with anyone who had a business getting funding. The ten major funders left, American Finance Solutions included, learned their lessons the hard way. Expect most to focus on SIC codes and business models that "make sense" in a recession. More on that in my next post.

2011 2nd Quarter MCA-Industry Statistics

2011-07-31T10:11:00.000-07:00

Given the young age of the Merchant Cash Advance product, it is very difficult to come up with industry statistics. There are no public companies that offer the product, so data is limited to self-reporting, legal filings, etc. American Finance Solutions believes that those who provide estimates are mostly taking a shot in the dark.

One source that does seem to have a decent handle on the industry is Merchant Cash Advance Resource. Personally we would consider this the best estimate for volume of total MCA business being reported. Basically the best "guesstimate" that we know of.

For the 2nd Quarter 2011, they are reporting approximately $128M in total fundings for the quarter with a total of over $257M in fundings for the first six-months of 2011. Note: American Finance Solutions is not endorsing these numbers or know the source.

One area that appears to be is the most active firms section. I believe they are listing the actual number of fundings not the total dollar amount when ranking funding companies. Definitely Advanceme is the 800-pound gorilla, however data on all other firms is very minimal with most closely guarding their data.

You can view the 2011 2nd Quarter Merchant Cash Advance Statistics by clicking here.

Hard And Soft Fraud On The Rise!

2011-07-24T09:59:00.000-07:00

Looking back out our application flow over the second quarter at American Finance Solutions (AFS), one clear trend emerged. Fraud submissions have tripled over historic averages. Knock on wood, AFS has successfully avoided funding any of these merchant cash advance contracts in 2011.

When classify fraud deals, we break them down into two categories: Hard and Soft. Hard fraud is when outright crooks are submitting applications for businesses that do not exist, have stolen a business' identity or a desperate actual owner has altered his financial documents to qualify for more favourable terms.

Soft fraud is when a legitimate business has submitted actual documentation, but is still not being truthful about his or her business. For example, they give false landlord contact info to achieve a good rent verification when they actually months behind on rent, present a paid in full letter from their current funding company when they still have a balance, claim to never have had an MCA when they were previously in collections with a competitor, just filed bankruptcy or conveniently forget to inform us that they just consolidated their two locations into one. The scenarios.

Thanks to the North American Merchant Advance Association (NAMAA), most of our fraud is caught upon the initial application submission. Thanks to a great database, fraud alert network and dedicated NAMAA contacts for each member company a funding company can catch fraud early and not waste personnel time on bad deals and keep their sales partners more satisfied since they do not waste their time as well. If you are a funding company, I cannot imagine putting any money on the street without checking with NAMAA. For such a nominal monthly fee you'll save thousands. In AFS, first month we saved over $200,000 in fraud deals that we may have funded.

The reputable funding companies are getting better and better each month at finding both hard and soft fraud. This is very good for the industry. As the fraud rates drop, the industries overall bad debt continues to plummet. My personal estimate is that across the board, bad debt has dropped by 50% over the past 12 months due to fraud detection. This has resulted in a significant cost savings to our legitimate clients. Now, it is not uncommon to see deals with expected paybacks with factor rates well below 1.3, this was unheard of in 2009.

If your a sales organization representing the Merchant Cash Advance product, make sure all your funding sources are with the NAMAA. You'll end up operating much more efficiently by focusing on fund-able deals. Nothing is worse than chasing documents for a week, arguing with your funding company about the validity of paperwork and only hearing a recorded verification call where the merchant is busted! Again, know your merchants well so that as a sales organization you can build a strong performing portfolio with a few funders (it will go a long way in getting special favors or pricing for future clients).

When To Confirm Competitor Payoffs?

2011-07-16T10:35:00.000-07:00

In the Merchant Cash Advance world, paying off a competitor's advance is a somewhat common practice. On about five percent of our new clients we have to wire the funds to a competitor to buy them out so that American Finance Solutions is in first position for the credit card receivables.

The catch for our sales partners is when to make the contact with the competitor to confirm the payoff amount and payment instructions. There are advantages to calling early right when contracts are received; and waiting to just prior to funding.

When calling early, AFS risks tipping off the competitor that they are about to get bought out of a deal. If its a good, profitable client (which is most often the case) the competitor will often "instantly approve" the a renewal and offer to wire funds that day and beat our offer. Of course they can do this since on a renewal the compensation to the agent of record is much lower than the new agents upfront commission. Most of our agents prefer that we don't tip off the competition (especially for the small NY-based upstarts with less than perfect reputations) and work on getting their deal funded.

So most often we wait to the day funding to confirm the amount. Most often the competitor is a NAMAA-member and we call the NAMAA contact. (All NAMAA members have agreed to provide truthful, relevant information on clients when answering payoff questions; and its been working for the past six months with no issues that AFS is aware of). Sometimes we find out the reason that the client cannot renew is because of collections issues, fraud (altered payoff letters) or trying to get double funded on the same day by the old and the new MCA company. Of course AFS is not going to be funding clients with these situations.

Of course our sales partner is not happy, they just spun their wheels and invested much time and energy for no reward. Believe it or not, we are not happy just having wasted staff time and incurring expenses for reports, site surveys, etc. In our view though the frustration and expense lost on a few clients is worth it to not take the risk of calling early and losing the deal.

Again, though for our sales partner we cannot stress enough to know your client! Find out the funding date of their current advance and deal terms. If the contract payback amount is $50,000, they got the advance six months ago and the balance is over $30,000 there's an issue with payback. You'll end up being more productive and funding more deals!

How To Speed Up Your Funding And Avoid The Dreaded Killed Deal

2011-07-09T19:44:00.000-07:00

As the world of Merchant Cash Advance continues to mature we are seeing that price for the product is becoming less of differentiator. Service and speed of funding contracts is quickly becoming the factor for funding companies. At American Finance Solutions we've taken significant steps by investing in systems and people to address this issue. Over the past six months we have improved this significantly by two business days with most contracts funding in under four days.

Even given all of your improvements, AFS does not control all the aspects of a deal. Both our clients and sales agents can greatly influence the speed of funding and ensuring that an approval doesn't get killed in the due diligence process. By following these two simple steps you'll greatly improve your success rate.

1. Don't Hide The Bad & The Ugly - So many times we see merchant and/or their sales agents trying to brush over some negative information about the business such as recent tax liens, being constantly two weeks late on rent or some other issue. With all the technology and tools that funding companies use such as site surveys, legal/public database aggregates, background checks, reverse phone look ups and even simple Google searches we find out about the issue eventually.

Our best sales agents (coincidentally the once with the highest compensation) present the Good, The Bad and even The Ugly on merchant's current situation. This allows us to properly structure and price a deal correctly upfront that doesn't put the client in a financial hardship, meets his or her needs, fits the funding companies risk appetite and yields enough margin to make sense for all parties. Often an inexperienced sales agent selling on price is also unaware of the Ugly. Top agents who are true finance consultants will educate their merchants to give them the whole story, that way they can present the entire situation in the best light to MCA funders to maximize approvals.

Nothing frustrates clients more than having to change terms or require payoffs of past due rent or just simple requests for tax lien payment plans at the 11th hour just prior to funding. Worse yet, when a company's due diligence staff discovers the undisclosed Bad or Ugly they start worrying about all aspects of the deal and client. The last thing the merchant or the sales agent wants to do is to turn a verification process into a Sherlock Holmes investigation adding days into the process and even resulting in the dreaded Denied stamp.

2. Have/Set Realistic Expectations - So often at AFS we receive contracts back and immediately give our Welcome Call to the merchant to confirm contract terms & payment method and inform them of the due diligence process. They are shocked that it is going to take three or four days to get their $50,000. It blows me away that intelligent business owners think that from a simple one-page application and a few bank statements that they faxed in a day ago will suffice for a company to wire them tens of thousands of dollars.

Unfortunately landlords are not always available and take a day or two to call or fax back. Setting up the collection method with a new credit card processor and ensuring that the withholding split is in place takes a couple of days usually as well (if there's a point of sale system that needs to be reprogrammed it could take a week or more).

More often than not its the weak sales agent that has promised funding the next day in order to get the deal that has created the issue. Sales agents have to take the 30 seconds to explain the process and set a realistic explanation that funding will be in three or four days and the repayment method must be in place (so download your terminals asap!) This way the client isn't blowing up the agents phone every hour, has a great experience and is happy to refer more clients since with a simple set of expectations he is delighted rather than frustrated. (Tip to sales agents especially - calling the funding company every hour to check on your deal doesn't speed things up, it actually delays it because people are using their time to talk to you rather than work on getting the deal funded).

By following the two simple steps above, both merchants and sales agents will see a dramatic increase in their funding success rate with minimal frustration.

In 2011 Banks Are Getting Tighter, Not Loser As Expected

2011-07-04T07:14:00.000-07:00

The most recent report by the Wall Street Journal, reports that for the 1st Quarter of 2011 small business lending from banks and other institutions decreased by 8.6% for 2011 versus 2010! All the hoopla of and marketing pushes by big banks appear to be just smoke and mirrors yet again.

In fact when you drill down into the data the numbers for banks (small business' historic solution for working capital), the numbers are even worse. For business loans less than $1 million, banks reported a drop of 14% and other small lenders fell 3%.

Now if you're an established business with significant revenue (in excess of $25 million) big bank lending has actually increased. Sounds like the same old story, that banks do not want to lend the lifeblood of the American economy, Small Business, when they need capital to grow and expand their business. But as soon as a business established and cranking out cash flow they open up the coffers, but of course it has to be collateralized and with personal guarantees!!!

Its no surprise that American Finance Solutions, had a historic record June in terms of funding amount. We continue to see a steady increase in applications and funding amounts. Some of our recent fundings include a well-established retailer with an 800 FICO but no real estate and a three location auto repair facility that has been established for 12 years.

For those that sell and market the Merchant Cash Advance product, there has never been a better time to build a strong portfolio!

Small Business Sentiment Slowly On The Rise

2011-05-08T20:57:00.000-07:00

If you sell or market Merchant Cash Advances, Insperity's recent report on small business outlook is music to your ears. Small-business owners are hiring more workers and boosting compensation in anticipation of increased business in 2011, according to the recent Business Confidence Survey released by Isperity. Of course this translates into the same businesses needing working capital to supply this expected growth and a willingness to take on financing.

In the survey conducted April 19-21, when asked how they are managing the number of company employees, 37 percent of owners said they are adding new positions (a huge gain from the previously reported 24 percent). In addition, 23 percent said that an economic rebound is under way, 40 percent expect it to occur in 2011 and 35 percent remain unsure.

While the optimism is up, the same business owners are still taking a conservative approach to employment decisions. Commissions to sales staff were down , overtime pay was only 8 percent of regular pay down from 8.9 percent in November.

This survey reflects what most of our agents and referral partners already know. Our clients outlook on the future is improving, but they are still very cautious. We are seeing this reflected in a significant increase in applications for funding. However, the requests are starting to change some. Instead of seeking maximum funding, most clients are now seeking reasonable funding amounts with reasonable rates and lower withholdings to protect cash flow.

This change is welcomed by MCA funders. With lower funding amounts and withholdings the risk is dropping rapidly with bad debt ratios falling by 50 percent in the past few months. Business owners are also having a better experience with the MCA product since they are not struggling with high withholdings and/or lack of buyers remorse from high factor rates.

The end result is building a very profitable client portfolio for both funding companies and agents for the long term as these clients will becoming back for more and more funding.

AFS Launches Risk-Based Pricing

2011-03-05T17:46:00.000-08:00

In the Merchant Cash Advance industry the two major factors that determine pricing for clients is the expected collection time for a contract and the associated risk with the contract. As we have all seen bad debt is the main driver behind the cost of money (and also makes or breaks many of our competitors.) For 2011 AFS has just launched a true "Risk-Based" Pricing model to be more aggressive on pricing contracts for merchants. For agents that have not submitted a deal to AFS in the past three weeks, you will be quite surprised on the outcome of your next submission.

The new pricing calculator now looks at more than just expected payback period to price a deal. Many other factors are now weighed including, time in businesses, expected contract length, seasonality, industry and twenty-two other factors. In addition, the calculator also allows for our Account Executive to provide multiple scenarios pricing very quickly, making it easier to offer multiple contract scenarios across all types of variables (withholding percentages, cost, funding amount, etc.)

The result for our clients is that merchants that show greater credit worth will now receive preferential pricing. The pricing also takes into account our clients' payment track record on repeat contracts. The goal is to keep an AFS client satisfied for the long haul and loyal.

However, the largest improvement to our agents is the ability to modify their compensation stream to achieve better pricing without affecting the total amount earned on a deal. Our Account Executives can now offer pricing options moving a portion of the upfront commission to payback residual. This will be done only upon request of the Agent to be more competitive on pricing and is a great solution (instead of having to reduce commission to get a deal done.)

Bottom line is that AFS Agents are now able to customize pricing for contracts to close more deals and build a strong portfolio of clients. For more information or better yet to take advantage of this new pricing please do not hesitate to contact your Account Executive or Ray Felts, Agent Development Manager at 800-760-5516, ext 106.