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.