Bootstrapping 101

Image by cosmic aether via Flickr

Now that you have slaved away night and day to get your business off the ground. The hardest part is finding financing, especially in these times.

Our Merchant Cash Advance product is in greater demand than ever. Often our clients need more funding than we can qualify them for. They use our funding for the most mission critical needs then boot strap for the rest, because failure is not an option

Their are five successful keys to bootstrapping:

1. Focus on cash flow! Most small business owners focus on profitability and that's a good theory. Unfortunately theories don't pay the bills, but cash does. Focus on clients/products that pay promptly or even prepay, stretch your suppliers terms to the limit and conserve every cash expenditure.

2. Forecast from the grass roots, not from the top-down. Example, we add an additional shift we can install 15 more units a week versus we need to gain 3% points of market share in our market. The first in much more tangible and easy to focus on and become attainable.

3. Forget the "big league" players to staff your team. Hire starving, talented young kids that will not only bust their butt, but also foster creativity and new solutions. The key is directing all that energy towards the goal of generating cash!

4. It doesn't need to perfect! Your product or service will never be perfect and once you think you have it perfect, clients will most likely not. Its a constant revision to deliver a great product or service that provides value. Just get it out there and refine from there.

5. Understaff and add staff only when the breaking point is near. You get to sleep when you're six feet under, plus the growth your forecast may not happen for another six months so why pay for extra staff until you need them.

Sure there are other ways to save your cash and build your business. The above are the biggest items that will suck up all your cash. Don't focus on the pennies of profits and let the dollars of cash slip through your fingers!

Credit Lines For Small Business Cut 25% Since Last Year!

Everywhere in the news we have been hearing that the signs are there for the end of the recession. Unfortunately the recession will not be ending anytime soon until the credit markets return to normalcy. At American Finance Solutions we supply credit to small- and medium-sized business and we follow the credit market closely and sadly report that credit is being denied at an accelerating pace. Large, well-capitalized companies have no problem finding credit. Small businesses, on the other hand, have never had a harder time getting a loan.

Since the onset of the credit crisis two years ago, available credit to small businesses has contracted by trillions of dollars. The same is true for consumers (who support most small businesses with their spending) and that phenomenon is reflected in dismal consumer spending trends. Equally worrisome are the trends in small-business credit, which has contracted at one of the fastest paces of any lending category. Small business loans are hard to find, and personal credit-card lines for small business owners (a critical funding source to small businesses) have been cut by 25% since last year.

Unfortunately for small businesses, credit-line cuts are only about half way through. Home equity loans, also historically a key funding source for start-up small businesses, are not a source of liquidity anymore because more than 32% of U.S. homes are worth less than their mortgages.

Why do small businesses matter so much? In the U.S., small businesses employ 50% of the country's workforce and contribute 38% of GDP. Without access to credit, small businesses can't grow, can't hire, and too often end up going out of business. What's more, small businesses are often the primary source of this country's innovation. Apple, Dell, McDonald's, Starbucks were all started as small businesses.

What's especially disturbing is how taxpayer dollars have supported "too big to fail" businesses yet left small businesses unassisted and at a significant disadvantage. Small businesses do not have the same access to government guarantees on their debt. After all, most of these small businesses don't issue public debt.

In reality, our government should be supporting the life blood of our economy by offering incentives to community banks to step up small-business loans on a greater scale. These smaller banks could not only bridge gaps created by the shut down in the securitization market but also gaps being created by a massive contraction in credit-card lines. Arguably credit would perform better with these types of loans as they would reintroduce and reinforce the most important rule in banking: "Know Your Customer."

Alternative lending sources such as merchant cash advances offered by AFS will continue to thrive as the trend continues. We get to "Know Our Customers" and offer solutions to access capital and grow your business.

Approval Rates For MCA At An All Time High

Image via Wikipedia

In the past 60 days approval rates for Merchant Cash Advances are at an all-time high. American Finance Solutions is currently running a 70-plus percent approvals for new clients. There are a couple of reasons for this.

First reason is the state of the economy and almost total lack of traditional funding. Everyone knows the last 18 months have been some of the toughest on record of business owners. Banks have tightened up their lending activities in response, but to make matters worse the banks are now left with devastated portfolios of commercial loans.

Merchant Cash Advances are filling a huge void in the market place by supplying desperately needed capital to marketplace. If you are in the business of offering MCAs, there has never been a better time to build a portfolio of clients.

A second reason has been the maturation of the MCA-industry. Now the MCA product is evolving to offer various products that fit certain business-types or situations. A good example of this has been the fixed-repayment schedule. At AFS you can choose between paying a contract as a split percentage of credit card sales or a fixed weekly or daily payment. Another product is the "starter advance" where clients are offered smaller funding amounts with quick repayment times to limit risk to the funding company. This allows clients to build lender history and graduate up to more financing and improved terms. AFS launched its FAST CASH product in this niche in August of 2009.

I firmly believe that the combination above will last for at least three more years and continue to give merchants access to capital and provide agents with strong customer service skills a chance to develop a great clientele list.

Bad Credit = No Small Business Loans

As business confidence begin to return the world of small- and medium-sized businesses, many entrepeneurs are lacking the capital to take their successful operations to the next level. A recent CNN video highlights just how severe the access to capital is.

A restaurateur who has proven he can thrive even in this challenging economy cannot find the funds he needs. Yes, he has less than perfect credit, as most successful business owners do. They boot-strap, borrow on personal credit cards, take loans from family members then work 80-hour weeks and make it happen.

This theme is occurring again and again across the country from large cities to rural areas in almost every business type. For many of these business owners a Merchant Cash Advance is one alternative financing method to take their business to the next level.

Alternative Finance Companies Here To Stay

Image by Metafora AD Network via Flickr

Business week recent wrote an article on entrepreneurs accessing alternative finance companies. You can read the entire article here. It confirms what most of us already know, banks have virtually shut their doors to all types of financing for small business! Credit lines (both secured and unsecured), equipment financing and even personal credit cards to business owners are all being denied.

The articles highlights the fact that alternative lenders, such as traditional factors, reverse equipment leasing and merchant cash advance financing is becoming the mainstream for business owners out of necessity. All of the above and more expensive than traditional bank financing since they involve the financing company taking on more risk.

As for merchant cash advance, it seems that we have finally made it out of the infant-stage of our new product and are now entering the mainstream. For our agents selling the product, now is the time to expand into new business types that have not used the MCA before and target clients with very good credit who would not have considered the product before.

Keep All Of Your Processing Residuals

The majority of agents offering merchant cash advances started with selling credit card processing services to businesses. The two products are obviously very complimentary and go hand in hand.

Image by Alpharetta CVB via Flickr

As an agent selling both services you not only benefit by earning commissions on both products, often making two lucrative sales to the same client, but also by keeping the client for years. Business owners who take a merchant cash advance are prohibited from switching their processing until the contract is paid in full. If you are representing a merchant cash advance company that focuses on client satisfaction then you'll be earning commissions for a long time.

The average American Finance Solutions (AFS) client does just over seven contracts, that's a lot of renewals and residuals. With AFS, our agents completely own the processing account and all of its residuals. You are not a sub-agent earning a split of a split. However the agent must be signed up directly with one of AFS' approved processors, since not all processing will perform the collection of our clients' credit card receipts for us.

If you're new to the industry you'll want to make sure you partner up with a company that allows you to maximize your earning potential from all sources. Make sure you do your due diligence and go with a reputable processing and merchant cash advance funding company. While some may offer a big upfront bonus, it doesn't make much sense if the client only does one contract and then leaves. All that hard work for a one and done deal gets frustrating, while building a solid portfolio of processing and MCA residuals leads to a successful business.

No Business Left Behind!

In today’s credit crunch most business owners across America are feeling left behind. Most of them are telling us that with the recession in full swing they have not been able secure a loan and a new line of credit. Businesses of all sizes have really taken a beating the last 18 months with the meltdown of the global economy, the credit crunch and lack of normal revenue from their customer base. Like the US homeowner that has been unable to continue to pay their mortgages and getting behind with payments the same thing has happen with business owners. They have trouble paying rent or leases, paying their employees, purchasing needed equipment to stay open and with cash flow issues. They are having the feeling of being left behind.

American Finance Solutions (AFS) FAST CASH program was rolled out to assure that “No Business is Left Behind”. With 175 business types 100% pre-approved and another 65 business types 95% pre-approved for AFS’ Fast Cash program. The underwriting process is streamlined and inclusive for this new financing product. Now business owners can have a recent Bankruptcy, liens and a low credit score (in fact credit isn't even considered) and still get approved for FAST CASH.

The FAST CASH product is really more inclusive to those that have been really affected by the present recession. A lot of these clients are good owner-operators that have had some bad luck with not being able to pay bills on time or have had to file for bankruptcy. The FAST CASH product allows these merchants to navigate through some really tough financial times and get caught up on a few bills and get above water.

AFS will fund a business with the FAST CASH product in 24-48 hours and them qualify for between $2,500 to $9,500.

The requirements for FAST CASH financing are as follows:

1. Must process at least $4500 per month in credit cards
2. Have no current cash advance accounts open
3. AFS must obtain a landlord verification and must not be behind in rent more than one month
4. Minimum of 15 credit card batches per month

The business owners who receive the FAST CASH product are not the only ones who benefit. AFS allows the ISO partner agents to keep 100% of all the processing residuals and they also get a great upfront and back end commission on the deal. Merchants who complete three FAST CASH programs are then approved for a traditional cash advance.

SBA Writes Off $2.1 Billion In Small Business Loans

Earlier this week the Associated Press reported that our Federal government bought over two billion (that's billion with a big B) in small business loans that have gone bad (that's bad with a big B). This is quite a big jump from from the previous year where the Small Business Administration bought back $1.3 billion in bad loans from banks. For the full article please visit AP.

An analysis conducted by the Associated Press found that the time between loan approvals and loan defaults is narrowing. According to the analysis:

More than $235 million in restaurant loans have been charged off since 2007. The 2,586 restaurant charge-offs make up the largest number of defaulted loans, according to the SBA. More than 150 loans made to Quizno's franchises — worth nearly $15.5 million — have been written off since 2007.

Restaurants have been part of the core market for Merchant Cash Advances since inception and will continue to be so. With default rates like those above, even the SBA will be very wary about guaranteeing loans to restaurateurs. Obviously for our agents selling MCAs you may want to continue targeting this client base.

For those restaurants seeking funding for expansion, improvements, etc. a merchant cash advance will continue to be a feasible alternative for financing. Yes, the rates are much higher than a traditional SBA loan, but given the added risk highlighted above hopefully it is a little more understandable.

SBA's New Floor Plan Program

The Small Business Administration recently announced a new Dealer Floor Plan program to assist car, motorcycle, boat and motor home dealerships secure financing for inventory. This should help many of our clients in this business, but you have to act fast as funds may run out.

Details are as follows:

Dealer Floor Plan (DFP) Financing Pilot Program
Beginning July 1, 2009, the SBA will introduce the Dealer Floor Plan (DFP) Financing. This program offers government guaranteed loans to finance inventory for eligible auto, RV, boat (including boat trailer), motorcycle, manufactured home and other dealerships under a new pilot program that runs through September of 2010. When each piece of collateral is sold by the dealer, the loan advance against that piece of collateral is repaid and the dealer borrows against the line of credit to add new inventory. Here are some of the highlights:

* Size of the loan is $500,000 (minimum) up to $2,000,000 (maximum)
* Borrowers will receive a fee reduction as outlined in the recent changes to the standard 7(a) loan programs
* The maximum guarantee is 75% as opposed to the 90% in the standard program
* The maximum term for the DFP loan will be five years
* Loans will only be made for inventory that can be titled

For complete details visit http://www.sba.gov/floorplanfinancing/index.html

CIT Groups Pending Bankruptcy

CIT Group may be the largest financial player you never heard of. CIT has over one million customers, most of whom are small- and medium-sized businesses. Unfortunately with bankruptcy looming for the financial giant most of these companies will see their credit lines slashed or completely disappear.

If you're one of the above business owners, it's time to devise a backup plan. No matter what the end result for CIT, its current financial struggles signal that credit is going to get harder than ever to come by. When these business owners do come across credit it is going to be very expensive. It all comes down to the basic Economics 101 and the law of supply and demand. There's a very limited supply of credit and a swelling of demand. The swelling is continuing to grow at a very rapid pace.

This will affect the merchant cash advance industry as well. Agents and funding companies can expect a huge influx of demand and increased applications and conversions over the next few months. Many MCA companies may be increasing rates in an effort to limit their funding amounts as they may hit ceilings on their own access to capital.

The end result is definite opportunity in the industry of Merchant Cash Advance to gain a new client base and expand into other industries.

MCA Agents: Choose Your Partners Carefully!

Over the past two months American Finance Solutions has seen a large increase in quality agents signing up to be partners. We screen all of our potential agents to make sure that there is a good fit. Specifically with ethics, aptitude and ease of doing business with. After chatting with the owner of the agency signing up it seems that most have a horror story about a previous MCA provider or worse yet were a sub-agent to an agent that was signed up merchant cash advance company.

Generally the story always revolves around payment of commissions or processing residuals. If a MCA funder is going under the quickest way to conserve cash flow is too stop paying commissions, that’s a no brainer. The company can simply exercise its clause in the contract to adjust commissions at any time without notice. However, this is also the fastest way to decimate the very individuals and companies that bring the business through the front door. I just don’t get it, not a smart short- or long-term business decision.

Make sure that you are partnering up with a solid industry player that has a proven track record, hopefully three or more years. If so, the funding company has made it through the past 18 months of rough times and is here to stay. Residuals income builds quickly with most agents earning in the mid- to high- four figures monthly just on MCA residuals (that’s not even taking into consideration the merchant processing residuals).

The second, most popular gripe involves the MCA company renewing a contract with a client the day after the renewal clause in the agent’s contract expires. For example, most contracts say that the agent will earn renewal commissions if the business enters into a new contract within three months after previous contract expiring. Funny how some MCA companies start underwriting the renewal in the final hours of the third month and wire the funds for the contract on the day after the three months. Then low and behold the processing changes from the agent’s merchant processor to some other one.

The worst stories involve those where an sub-agent relationship has happened. The funding company pays the commissions to the registered agent, their fiduciary duty is done. Then the sub-agent has difficulty in collecting from the registered agent. Why not sign up directly with the funding company, you’ll make as much or nearly as much and have a direct relationship that you can count on.

To summarize, when evaluating a new funding source to place your deals make sure you do your due diligence. Sure high-upfront and high-residual commissions sound great, but anyone offering these will not be around in a few months, the economics just don’t make sense. Or they’ll do your deals, but all of them will be at a lower commission structure in order to get approval.

Specifically ask the following:

1. What is the track record of the merchant cash advance company? Hopefully 36 months or more

2. Is the merchant cash advance company a licensed lender? If so, they made financial and operation commitment to be held accountable and will easily survive potential industry regulation.

3. What is the merchant cash advance company’s funding source? Hopefully institutional (i.e. a traditional bank or factor bank; not a hedge fund!)

4. Who do you partner with for credit card processing? (Make sure its strong industry players that will pay your processing residuals and have an ethical track record.)

5. Ask for other agent referrals? (If they will not give you these, there’s a reason!)

Merchant Cash Advance Shakeout

The last 6 months in all areas of finance have caused a great shakeout of those that were not built on solid ground. Firms that gambled and rolled the dice by leveraging paid the price. Across the every finance-related industry (from mortgage brokers, investment banks, hedge funds, retail banks to merchant cash providers) the number of players has shrunk and only the strong have survived.

In our space many of the merchant cash providers have shut their doors or are on life support only servicing existing clients with a skeleton workforce to just service their portfolio. Those that thought MCA was the next “get rich quick” scheme and funded every deal that came across their desk are now gone. Also, those that competed on price without regard for bad debt are now fighting to survive.

The same is also true for the thousands of sales agents of MCA that sought to stick it to business owners and provide financing without regard to capacity of the business to handle the repayment. Unfortunately the same “get rich quick” mentality attracted many unsavory characters from the mortgage industry. As times got tough and MCA funders started tightening up, these agents quickly fell to the way side.

While shakeout in any industry is always painful to go through, those that last emerge stronger. Those that remain like, American Finance Solutions, have built strong systems, sales agent relationships and evaluate risk properly. Currently there are about ten legitimate competitors in the industry, each providing a comparable product and specializing in their niches. Those of us remaining are uniquely poised to take advantage of growth with the reduced competition and hopefully future growth of the US economy sometime in 2010.

As for sales agents, the shakeout also helped clean up the industry. Most of the fly-by-night operations have shut their doors. The most successful sales agents/teams are those that truly understand their clients’ needs in both financing and credit card processing and provide solutions that best match those needs. While they may not be getting rich over night, they are building success relationships with both merchants and MCA providers that will provide for them for many years to come.

As small business’ across America continue to weather our current financial storm with traditional credit markets in shambles, many, many more will turn to MCA to finance their businesses.

American Finance Solutions estimates that industry wide approximately $150 million of merchant cash advances are funded in the 1st Quarter of 2009 and expect this to grow at a measured pace through the end of the year and then quickly accelerate as soon as the US and global economy recovers. We look forward to growing with our clients, agents and partner credit card processing companies.

Comparing MCA Quotes

Many clients call AFS all the time when shopping for the best rates for a merchant cash advance. Most of the time the first question is, "What is your best factor rate?" While this is one important part of the quote, you cannot compare it without the second part of the equation which is the withholding rate.

At AFS we've written contracts from a factor rate of 1.1 (providing $10,000 in funding for $11,000 of future credit card receivables) all the way up to a 1.5 (providing $10,000 in funding for $15,000 of future credit card receivables). They key element is how fast do you expect the MCA provider to be collect the amount of the contract.

For example, a merchant that does $20,000 per month on credit cards consistently. Might get a quote for $20,000 in funding with factor rates of 1.3 and 1.4 from two different companies. If they both have the same withholding rate of 30% of credit cards then its easy to identify which is the best deal.

If the 1.3 factor rate has a withholding of 25%, we would expect the MCA provider to collect the $26,000 over 5.2 months. Now if the 1.4 factor rate quote has a withholding of 20%, the MCA provider will collect over 7.0 months. As a business owner the merchant will need to ask him or herself two important questions:

1. Is the higher factor rate worth the longer payback period?

2. Can my cash flow afford the withholding percentage?

Often we have clients that want a factor rate of less than 1.2 and generally MCA providers have no problems with providing a low factor rate. In fact, MCA providers generally prefer lower factor rates, because they collect on those contracts over a shorter time frame, thus lowering their risk on funding the contract. However, most reputable MCA providers also recognize that they can quickly put a merchant out of business if they withhold too much of business' credit card sales. Most MCA providers limit the amount that they expect to collect from a merchant to 11 to nine percent of the business total gross sales.

When comparing quotes remember the old time/value of money rule. The longer you have the funds, the more it is going to cost due to greater risk of default. Don't forget to deal with only reputable companies that have a proven track record and will around for the long haul to support your business for years to come. Most MCA providers offer discounts on subsequent contracts since the merchant has demonstrated a proven track record in paying back a contract.

How To Shop For A Merchant Cash Advance

Merchant cash advances are a great option for financing when a business cannot get a traditional business loan or does not have the time to wait for a loan to close. Unfortunately there are a few providers that charge additional fees, dramatically increasing the cost of the financing or have restrictions that do not fit a particular business.

When seeking a merchant cash advance make sure you find the right financing institution to fit your business' needs.

- Make it a priority to seek a merchant cash advance that requires no closing costs.

- Avoid initial, up-front fees including application fees, credit report fees and any other fees. Negotiate or seek a merchant cash advance provider that can wave initial fees.

- You may be asked to provide collateral to obtain a merchant cash advance. If your merchant cash provider requires it then the rate should be dramatically lower because it is now secured financing.

- Some merchant cash advance providers require that the business provide financial statements. Most require them for larger funding amount ($50,000 or more)

- Avoid any minimum payment requirements in the MCA contract. Some contracts require that a minimum amount be collected. The beauty of the MCA is that payback is tied directly to the business' cash flow. So, when the business is doing well, it pays back faster and just the opposite when its slower.

- Find the right collection method for your business. Most MCA providers have the business change their processing over to a credit card processing company that splits the credit card batches. If you can't change credit card processors, some may offer a trust account (also known as a lock box) collection method, where all credit card proceeds are deposited into a separate checking account then the business receives its proceeds via ACH. Some MCA providers may also offer a fixed payment collection where they collect a set amount based on the average credit card sales a business does. For example a business does $100,000 a month in credit card processing and enters into a contract where 10% of the credit card sales are collected, the MCA provider may collect $2,500 per week via ACH to equal 10% of the $100,000 it would have collected by splitting the credit card batches.

- Some MCA providers require that you've been in business for at least 24 months. If that's not the case, you'll have seek a company that have a lower requirement. Generally the minimum amount is 12 months, unless you're operating a well known franchise, then the minimum is around six months.

- Know your credit score before you start shopping around. If your business has a lower score, look for providers that fund contracts in your score range. Generally the minimum acceptable score is 550, but some have minimums of 650 or even higher.

- Most important is to find a MCA provider that has been around for at least two years and is financially sound. Many small MCA providers come and go due to lack of capitalization. You want to make sure you find one that will be a true partner in your business. Most business owner renew there cash advances even before the first contract is paid in full. It should be a relatively painless process to get additional funding in 48 to 72 hours the second time around when your balance is paid down (generally the business has to have paid 70% of the balance before being eligible for more funding.)

- Last thing is to research the financing company by checking their Better Business Bureau rating, see if they have a finance lenders license (this is not required, but its nice to know if they are being regulated) and check out discussion boards to see other clients reviews.

American Finance Solutions does not charge any type of fees in association with its contracts, does not require security in any collateral, offers all three collection methods, requires business be operating for 12 months usually (six months for a franchise), minimum FICO score requirement of 550 and has been in operation for three years and is a licensed California lender.

Prix-Fixe Saving Restaurateurs

One of the most predominant businesses to use the merchant cash advance is restaurants. Historically it has been next to impossible for a restaurant to get any type of unsecured financing from a bank or other financial institution. So it is no surprise that they were the early adopters of the MCA product.

If you've been any restaurant, especially high-end ones, you might have been the only patron. With virtually every American feeling the economic crunch the first discretionary spending to cut is eating out. As a MCA provider we have definitely seen our clients sales fall for high- and middle-end restaurants while sales at low-end restaurants increase significantly as the consumer spends much less (its a great time to own a little taco shop or pizza joint.)

There are a few bright spots for our gourmet restaurants and their clients. All of those that are surviving have adopted the fixed price menu. This recent article in Restaurant News shares the success stories from restaurants that are thriving with a prix-fixe menu and actually gaining market share.

If your in the business that offers MCA you probably know that most providers are very hesitant to offer new restaurant a contract when the clients need it most. MCA providers need really look at a potential clients operating history. Agents selling the MCA really need to get to know the client and find out the following:

Have sales remained steady over the past six months? If so, the owner is definitely doing something right and will most likely be around for a long time.

Has the owner changed his operations? For example cut costs or added a breakfast serving to increase sales.

What marketing changes has the owner successfully implemented? Offering the fixed price menu or free delivery in the local area are good examples.

Now the agent can submit the client for financing with not just an application and some statements, but submit a complete package that is much more compelling.

SBA Announces Rescue Plan, Will It Work?

On Monday, the Treasury Department announced the details of a rescue plan to expand the small-business loan market. The details, which you are found here, explain that the Treasury Department is going to spend $15 billion buying securities made up of packaged SBA loans from the 7(a) and 504 programs. The major points of the plan are:

1. Dedicate $15 billion to purchase SBA loans

2. Temporarily raise SBA guarantees to issuing banks to 90% (up from current guarantees of 75% and 85%)

3. Eliminate SBA fees to both the business getting the loan and the issuing bank to lower the overall cost of capital

These are all great steps to loosen credit for small business owners. This will also spur many business owners to seek capital through traditional bank loans. However it does nothing to address the lending guidelines that issuing banks have.

I've received numerous inquiries from agents asking, "How will this affect the financial product I sell?" Many are worried that the new guidelines will result in less businesses to utilize the MCA. What we have seen over the past week is just the opposite.

The announcement has lead to a surge in business searching for capital, whom the majority do not qualify for an SBA loan. This leads many of those to discover the merchant cash advance product for the first time. Even better for those selling our product is that these new customers are much more credit worthy than the previous businesses, resulting in higher approval rates from MCA providers.

Now is a great time to take advantage of this upswing in business. The most successful realize that these new prospects coming into the market are also different than previous clients. Being a new product to them, the clients need to be fully educated about what an merchant cash advance is. Also, these new clients tend to be more experienced and more educated. They do more research and take their time making financial decisions. An agent who takes a more consultative sales approach focusing on customer service will not only be more successful, but will also land a client for years to come and generate multiple referrals.

Traditional Financing Gone For Small Businesses

If you own a small business and have been in the bank lately there are only two letters that you've heard. They are N and O! This recent article in Newsweek highlights the challenges that small- and medium-sized business are have in obtaining financing.

The example is a 46-year old plastic bagmanufacturing company that had solid relationship with his bank. With a company this established and marketing a core product one would think that they are a sure in for bank financing. Now imagine being a successful business that has been around for a couple of years.

Their are other options out there depending on your industry and product or service you sell. For companies that sell B-to-B a good route might be traditional factoring of their account receivables or spot factoring of just a few invoices. A manufacturer may be able to do an equipment lease back or certain piece of equipment or vehicles. Of course many service, wholesaler and retailers may be able to take advantage of the merchant cash advance.

For each of the above there are different fees and costs. All provide a low documentation, convenient alternative to bank financing. Of course the rate charged for each is higher than what you used to be able to get at your bank. Expect to pay two to four times the yield rate that the bank offers. So while access to capital is going to cost your business more than the past, its still out there for when you need it.

Responsible Use Of The Merchant Cash Advance

At our offices we get calls from business owners everyday asking about how a Merchant Cash Advance works. Nearly all are looking for traditional financing that their current bank or finance partner will not provide. Many of our clients recently had a traditional line of credit from their bank that has been pulled, despite never missing a payment and being a good client of the bank for years.

After explaining that an MCA is not a loan (but actually a sales contract) we get asked what is the rate? The MCA provider is purchasing future revenue at a discount (for example we might purchase $26,000 of future receivables for $20,000 today resulting in a $6,000 discount). Most MCA providers will set the credit card retrieval rate to collect the $26,000 over six or seven months. Doing the math you quickly see that paying $6,000 for access to $20,000 of capital is expensive and approximately triple the rate when compared to traditional bank financing.

The next question always out of the caller is "Why so high?" Answer: A MCA provides a quick, low-doc, uncollateraized business financing when most if not all other financing institutions will not. This high-risk financing carries much high default ratios than typical bank financing and for the MCA provider to stay in business they must make up for these losses in their pricing.

Most business owners love the thought of quickly accessing $10,000 to $150,000 of cash to grow their business. When entering into an MCA contract the client needs to answer two important questions:

1. By utilizing the MCA will I be able to make more profit in the long-run than the cost of the funds?

2. Can my cash flow afford the withholding percentage on my credit card receipts?

If the answer to either of these is no then the client needs to seriously consider the viability of an MCA for their financing needs. Reputable MCA providers are not in business to just hand out cash and make their premium. Rather they are here as an alternative financing partner to help business owners grow or deal with a situation or opportunity while not putting a financial hardship on the business.

Welcome To Merchant Cash Advances Blog

Hello all and welcome to the Merchant Cash Advances blog. This blog is dedicated to providing information and ongoing updates to the Merchant Cash Advance industry for both clients and sales agents (resellers) of the industry. We welcome all input and encourage communication from all to promote the industry and fairly represent the financial service that we offer.

The Merchant Cash Advance (aka MCA) has become increasingly popular over the past four years as a viable finance option for many small- and medium-sized businesses. While the industry as been around for over a decade the economic downturn and credit crisis that started in 2007 has resulted in tremendous growth. This tremendous growth brought numerous new MCA providers and thousands of resellers into the marketplace.

As the United States economy continued its collapse throughout 2008, the MCA providers who made poor decisions on which clients to finance paid the price with dramatically increase defaults. The resulting shakeout in the industry has left a core group of MCA providers, including American Finance Solutions.

To give an overview, a merchant cash advance is NOT a loan, but a factoring product where a business sells a portion of its future credit card receivables for cash today. The MCA provider offers an alternative financing option to provide working capital to small- and medium-sized businesses that do not qualify for under traditional financing. To summarize, a Merchant Cash Advance provides fast, low-documentation funding that is uncollateralized for businesses. The premium of this service is more expensive than traditional financing given the risk associated with financing.

Our industry has seen various website and blogs that come and go on the industry over the years. As the CEO of a mid-tier MCA provider who has been around for the past three years as a hand-on manager my goal is to provide unbiased information about industry. As this blog evolves it should will become the prominent resource for the industry for all to comment, educate and gain information on product and those who benefit from it.

Please email me with any questions, comments, etc. about this blog and the merchant cash advance industry. I look forward to developing this resource with your input sent to me at scott@americanfinancesolutions.com.