30 Second Summary Of 2010

With 2010 almost in the books, its time to look back in retrospective so we can all see how far we have come. The year started out with turmoil continuing for many merchants, merchant cash advance funders and sales organizations on the MCA. Those with strong foundations built in operations, customer service and experienced management continued with the re-trenching.

Most found ways to either, lower operational expenses, re-purpose marketing dollars while increasing its effectiveness or raise pricing by adding on value to the end clients to minimize customer attrition. Those that were most successful were able to combine all three and actually make growth in 2010.

On the merchant side of the equation, we continue to see that customers of our merchants keep pushing and demanding value for their hard earned dollars. Capital Access Network just released their Black Friday 2010 reports and one highlight is the fact that restaurants with an average ticket showed a growth of 4% versus 1% for those with average tickets in excess of $25. American Finance Solutions has definitely seen the same trends among our client base.

Restaurants tend to be an early trend indicator for most merchants. Since they provide vital commodity (you got to eat) and across the industry offer products at all different price and service levels. At AFS we expect the trend of higher volume and lower average tickets (or transactions) to continue across every industry.

On the merchant cash advance funding side we saw the same trends. Many funding companies shrank their operations to cut the fat. We also saw a complete change in marketing with most abandoning expensive trade shows and opting for a narrow targeted approach through various mediums. Lastly, most funders saw a dramatically lower average funding amount per contract which is to be expected with our clients seeing lower sales volumes.

Lastly the sales agents had the most turmoil in our space. UCC hunters are now just banging the phones with much less efficiency given the increased competition. Many funders have stopped filing UCCs all together to protect their client base. Many sales organizations also re-trenched in their operations keeping only the most successful sales representatives and rewarding them very well.

After looking back, 2011 looks like a great year for those who are well grounded and ready to capitalize on opportunity.

2011 Predictions For The Merchant Cash Advance Industry

2011 is right around the corner and its time to look ahead so one will be prepared for a successful year. On the Chinese calendar, the upcoming 12 months are known as the year of the Rabbit. The symbol aligns with the state the predictions for Merchant Cash Advance industry perfectly!

There are a couple of things that rabbits do well: multiply, play well together and enjoy the company of others. These three characteristics are also the same three predictions for the MCA-industry for the New Year.

1. Multiply

Demand for alternative financing will continue to grow for 2011 and AFS believes that the merchant cash advance will lead the way. In fact this growth will increase dramatically from because of both supply and demand of business financing.

The largest driver of growth will be the limited supply of financing to small- and medium-sized businesses. Traditional bank credit lines will remain extreme tight as commercial mortgages default rates increase. Only the very best credit clients will qualify for traditional lending and when they do qualify they better have assets to back it up. Equipment financing companies are also significantly tightening up their lending qualifications as well. The merchant cash advance is well poised to pick up the slack and fill the supply-side void.

On the demand-side, we will see a modest increase in demand for business financing. Those business who are surviving are now starting to take advantage of opportunity. The successful pizza franchisee is being asked by the franchisor to take over and turnaround other locations, landlords are asking their best tenants to open locations with huge concessions at other properties. Many of American Finance Solutions existing clients are buying competitors (or their assets) to grow by acquisition. All of these require working capital and the MCA is a great solutions for many.

A second part of multiplying is the MCA product mix. We will start to see more and more variations of the MCA based on term, cost and finally industry-specific products to fill very specific needs.

2. Plays Well With Others

On the marketing side of Merchant Cash Advance we are seeing the reseller/agent network morph. Traditional financial services sales organizations are quickly adding the MCA to their product line up out of necessity. As supply of business credit dries up, these sales organizations are scrambling to find new products to market and fill the needs of their clients. We will see the MCA being marketed together with other complimentary financing products, not just coupled with credit card processing.

This is resulting in a more consultative sale where a merchant can effectively evaluate the product and compare it to other financing options. Often when a clients first hears of the rates involved with merchant cash advances they are shocked. However, when you compare the rate to other products, the difference is considerably less and very competitive when they realize it is unsecured business financing. These resellers will be challenged to understand and effectively sell and deliver the credit card processing merchant services that has to be included as part of the sale.

3. Enjoys The Company Of Others

In 2011 you will see the merchant cash advance funding companies joining together in two ways. First, with large deals quickly on the rise and surpassing $500,000 the risk with one company is often unpalatable. Funding companies are smartly participating in these large deals to achieve risk mitigation. This cooperation is smart on the risk side for funding companies and for resellers and clients. As participation becomes more the norm in the industry and more comfortable for funding companies; larger deals will become more prevalent resulting in the MCA becoming a viable product for a new set of clients that have larger capital requirements. Resellers will benefit, however don't expect commissions to continue at the same straight percentages as these clients will push hard for lower rates.

Secondly, American Finance Solutions predicts some consolidation among funding companies. AFS and a few other companies have solid financing while others do not. The need for funding capital will create opportunities for growth through acquisition and mergers. In addition, the merchant cash advance industry has never experienced any consolidation, so the economies of scale that capitalize on operating efficiency have yet to be exploited.

As always, if you are interested in selling your funding company or its portfolio, American Finance Solutions is looking to buy. Overall expect the New Year to be more successful for all involved in the merchant cash advance industry!

Credit Card Usage Down, MCA Funders Worrying?

It was just reported by a major credit report agency that Americans had an 11% drop in credit card usage. Of the 70 million users the previous year, 8 million have dropped off the radar. At first glance Merchant Cash Advance funder might think they are in trouble with their expected payment stream quickly dwindling but these statistics require further investigation. For example, there were headlines over the past year about how much debt the U.S. consumer was "paying off" but when you dug into the numbers the reality was, the cause of this drawdown in debt at the aggregate level was almost entirely due to a huge swathe of people defaulting on debt.

More than 8 million consumers stopped using credit cards over the past year. About 62 million people now have an active card, compared with 70 million a year ago. The decline stems from a combination of consumer choices and bank actions. An analysis by credit reporting agency TransUnion found that use of general purpose credit cards bearing MasterCard or Visa logos, or issued by Discover or American Express, fell more than 11 percent in the third quarter, compared with the July to September period last year. The Chicago-based company found that consumers in the subprime category, or those with low credit ratings, were believed to be without cards mostly because they were shut down by banks after payments fell behind or balances were written off. "One can quite reasonably infer that's not voluntary," said Ezra Becker, vice president of research and consulting in TransUnion's financial services business unit. Banks have written off record amounts of credit card balances in recent years.

But a significant portion of the decrease in card usage reflects decisions by cardholders to stop using credit, Becker said. "They're simply either not purchasing as much or paying down balances." Many of these individuals may have shifted to using debit cards. In the past several years the use of debit cards has grown steadily and now surpasses credit card use in both the number of transactions and dollar volume. Interest rate increases by credit card companies and reduced credit lines have contributed to that trend.

The good news for funders like American Finance Solutions is that almost all credit and debit card transactions are used in capturing the expected payment stream from our clients. So in reality the economics of the merchant cash advance appear to be virtually unchanged. This is good news for the funding companies, agents representing the products and the merchants accessing the financing since there are no significant changes to the expected payback one should expect approvals, underwriting and access to capital to remain consistent.

Latina Business Owners Exploding!

American Finance Solutions has always had a very strong presence in the Latina community. Being in Southern California, with a high concentration of Latina businesses, we know how important and vital this client-base is to our business.

The U.S. Census Bureau statistics show Latinas are starting their own businesses at six time the national average. From 1997 to 2006, the number of Latina-owned firms increased by 121%. What is significant is that Latina business owners have quickly moved beyond the local restaurant and markets. At AFS we have seen significant strides that Latina owners are making in manufacturing, business services and retail.

What is important when marketing and servicing your Latina-client base, is doing it on their terms. Roughly 50% of our latina-client base, prefers to communicate in their native Spanish-language, even though they speak perfect or near-perfect English. So if you have this skill set as an agent, you're already half way home to the sale.

In addition, our Latina-clients are extremely loyal and honest. If you take care of your Latina-business owners, they will take very good care of you with continual repeat business and an almost endless supply of referrals. If you charge bogus fees, overcharge for equipment, hide ancillary prices; they will quickly leave and not be shy at all in telling all their friends and fellow business owners.

At American Finance Solutions, this target market has the lowest default ratio; making them very attractive to finance! In addition, Latina-business owners often do not have a strong banking history with traditional financial institutions; making the merchant cash advance product a perfect fit for them.

Light At The End Of The Tunnel

It appears that the light at the end of the tunnel for small business is now insight (and the good news is that it is not a train heading towards us!). The National Federation of Independent Business recently announced its Optimism Index for October 2010. The good news is that the index increased from Septembers 89 to a 91.7.

What is significant about the number is that is a move in the positive direction, and a rise of nearly three points is significant. Unfortunately its not a large move. The index averaged above 100 points for the five years before the recession and has been sub-93 since January 2008, to give you reference points.

Small business owners are acknowledging that the most is behind them and we are slowly starting to recover, see some limited growth and a little optimism. Most though agree that their is light, but the tunnel is very, very long. The announcement also stated the only seven percent of business owners thought it is a good opportunity to expand and grow; and 73 percent reporting that now is not the time to grow.

We at American Finance Solutions, firmly believe that the next two to three years will see slow consistent recovery with some bumps along the way. This slow growth has definitely started and we see it with the increased demand in our merchant cash advance product line up. Good news for us and our agents is that the grow will continue at a nice pace.

Economic Stimulus: Success Or Failure?

Often we hear from our small business clients about the State Of The Union and Washington's policies. In talking with hundreds of small business owners we have never seen an almost unanimous opinion: the Obama Administration's economic strategy is a failure!

The current consensus is that the economy is not growing fast enough to produce jobs and there is little recovery in sight. Most are deeply concerned that the budget deficit will remain in excess of $1 trillion for years to come, putting the U.S. into a deeper fiscal crisis. What is most frustrating to are clients is that neither party has a realistic plan to start solving the problem. It seems doomed to only get worse.

Obama's Administration believed that with a temporary stimulus the economy would revert back to a state similar to pre-financial crisis and counted on the personal savings rates going back to the 3% range of disposable income or less and new housing starts recovering to the $1 million unit level. They believed this approach would give the needed economic shot in the short term to stabilize markets, which would be followed by increased personal spending which would restore growth.

Unfortunately the Administration didn't see the true macro economic drivers of the crisis. Consumers had hit the debt-wall from years of over-spending, while years of neglect on the US critical investment needs such as infrastructure, and energy had been neglected. The US has been losing its long-term competitiveness, hidden behind all the growth in consumer consumption that was creating jobs and a middle class in China.

So what happened was the savings rate has doubled to over 6% and of course housing starts barely creep along above the half-a-million units per year. The US economy needs much more than a temporary stimulus fix. It needs a structural change which is taking place by natural market forces. More savings equals more investment into the critical components the US needs to stay competitive.

All of American Finance Solutions' clients agree, that its going to get worse before it gets better. They all are ready to bite the bullet and have had a lot of practice over the past two years in surviving the storm. They want the needless spending stop and start having Washington make investments for the long-term, not for the political flavor of the day, even if it means serious sacrifices in the short-term, including another recession.

AFS Joins The North American Merchant Advance Association

American Finance Solutions is proud to announce that we joined the North American Merchant Advance Association (NAMAA) this month. NAMAA is a not-for-profit trade association representing the organizations in the US and Canada that offer working capital advance products based on credit, debit and other electronic payment-related revenue streams to small- and medium-sized businesses. The goal of NAMAA is too shape our Merchant Cash Advance industry by providing leadership, education and sharing of information.

With MCA being an alternative financing product for businesses, it is often seen by traditional lenders as a high-risk, expensive and questionable product. Reality is that the Merchant Cash Advance is a fairly priced, un-collateralized business financing that fits its niche in the marketplace. During the infancy of the product in the early-2000s, the product was and sometime continues to be sold incorrectly. The NAMAA recently set Best Practices Guidelines to ensure that all funding companies and agents represent and sell the product properly.

American Finance Solutions has always adhered to these Best Practices since our first day of operation over five years ago, since they are the proper way to do business. For those that do not know the Best Practices, they are six key elements:

1. Provide Clear Disclosure Of Fees

2. Provide Clear Disclosure Of Recourse

3. Be Sensitive To A Merchant's Cash Flow

4. Adhere To Proper Marketing Materials Disclosure

5. Monitor Resellers Of The MCA Product

6. Proper Payoff Of Outstanding Merchant Cash Advance Balances

In addition, NAMAA members all contribute to fraud prevention on both the client and agent side of the business to protect members from unscrupulous individuals. American Finance Solutions looks forward to contributing to the NAMMA organization and helping shape a strong MCA industry that continues to prosper in the future.

Forecast For Small Business Default Rates Dropping

The Stanford University Business School was announced their forecast of default rates on small business loans. Based on analysis of PayNet data the default ratio is expected to decline from 4.6% in 2010 to 3.9% in 2011.

Since 2006 the average rate of small business has averaged 6.9%. This means that small businesses in general are defaulting on their obligations less. Merchant Cash Advance funding companies are also see their default rates drop at approximately the same ratios. As compared ot 2008, the default ratio has dropped by 1/3 and looks likes the trend is continuing.

This drop has allowed MCA companies to do a couple of things:

1. Agressively price quality contracts, with a lower bad debt; funders can offer lower factor rates

2. Write deeper in their portfolio, again with the lower factor rate we can afford to take risks on some contracts

3. Offer contracts with longer expected repayment terms, as the we push out the timeframe risk increases

2011 is shaping up to be a record year for the entire industry. With falling bad debt, banks still siezed up and total lack of liquidity in most other alternative financing products, the MCA is becoming a viable alternative for almost all merchants.

If your marketing MCA their has never been a better time to build your book of business!

AFS Announces New Cash Flow Program With Low, Low Factor Rates

American Finance Solutions' new CASH FLOW program offers a new funding option featuring low factor rates with minimal restrictions! Over 60% of business owners funded by AFS list cash flow as their main reason for seeking capital. The CASH FLOW program provides this short-term financing at very competitive factor rates to fill this need. These short-term contracts, merchants quickly become eligible for their next round of financing in little as eight weeks, providing a continual stream of cash flow.

Factor rates available are 1.2, 1.22 and 1.25

Most merchant will qualify for funding amounts equal to 70% to 100% of their monthly credit card processing average. There are minimal restrictions and the program utilizes the same funding criteria as our traditional programs. All three types of collection methods (Split, Lock Box & Fixed ACH) are available with the CASH FLOW program.

CASH FLOW General Guidelines:
• Minimum FICO Score of 500
• Minimum Time In Business Of 1 Year
• Minimum Credit Card Sales Volume - $5,000/Month
• Maximum One Month Past Due On Rent/Mortgage On Business Premises
• No Open BKs Or BKs In Past 6 Months
• Restricted Merchant Types Qualify With Minimum 2 Years In Business

Why AFS CASH FLOW program?
• Sales agents will not lose the sale due to price!
• Eligible for additional funding when balance is less than 50%
• Agents offer low factor rates to all merchants, not just those with good credit
• Agents' commissions paid weekly and earn full commission renewals as well
• Funded by AMERICAN FINANCE SOLUTIONS – a proven leader in the MCA industry

As with all of AFS’ Merchant Cash Advances products, AFS does not have a processing fee, points or other closing costs. When a merchant’s contract is for $20,000; the merchant receives $20,000 in funding!

$30 Billion For Small Business Lending, Think Not!

Recently Congress passed legislation to create a new fund for $30 billion to assit 8,000 community banks in creating business loans. Specfically the bill, known as the Recovery Act Queue" will waive SBA loan fees, allow the SBA to guarantee larger loans and offer tap breaks for those businesses.

While this is a good step in the direction of opening up credit markets for small- and medium-sized businesses, it is just a band aid. Unfortunately, these businesses will still have to go through the traditional banking system to access the funds. That means qualifying under very stringent guidelines, providing full documentation and if approved accessing the funds in 90 days or more. The more critical issue is fixing the credit markets!

Unfortunately the $30 billion does not place restrictions on business size that can utilize the funds. Most bankers are much more favorable to lending to large, established businesses rather than mom-and-pop operations. I have to believe that the $30B will quickly be gobbled up by established businesses retiring pervious expensive debt and leave little for Main Street. The banks will continue to lend to only their best clients and forget it if you have a credit score below 750!

The fundemental issues are still present and continuing to grow. In the MCA space we continue to see record submissions and funding amounts month-after-month. If you are an agent offering Merchant Cash Advance or any other type of alternative business financing, there has never been a better time. The demand is there, the funding companies left are all solid proven players and the range of MCA products continues to expand making it easier to get clients funding.

Do Mortgage Defaults Effect MCA Qualification?

Almost daily we receive submissions for Merchant Cash Advances from business owners that have perfect credit other than a mortgage default/severe delinquency. Many times these owners are perfect with every other payment (car notes/leases, credit card cards, utilities, etc.) and still suffer from sub-600 FICO scores. This obviously makes them ineligible for any type of bank financing.

For a multitude of reasons these merchants are walking away from their homes. During our merchant interview we hear horror stories about how they have tried to negotiate with the bank to do a loan modification or some other workout. We'll this video shows you the real story on why the banks make more money when the home owner defaults. It also reinforces what we all know, that bailouts only help Wall Street who doesn't need them and never reaches Main Street!



Here at American Finance Solutions, we welcome these clients who have good credit except for the mortgage and have a steady business. We know that they are highly unlikely to walk away from the business that they have worked so hard to build. Often we ask for back up paperwork to show that they applied for the loan mod or negotiated a short sale. If they already walked away from the property and the foreclosure is complete then usually documentation is not required. These are good credit worthy clients caught in an unfortunate situation.

If the business owner is a low-500 FICO and struggling across all credit lines, then we have to take a good hard look at the complete picture on both the personal and business side to make a credit decision.

I recently polled our competitors and about half take the same position as AFS, while the other half adhere to strict guidelines. Some require no more than 60 days down on a mortgage while others are 120 days late.

So, do mortgage defaults effect a business owners ability to qualify for an MCA? The answer is, it depends on the situation and who you apply to.

Feds Take On Small Business Lending

Ben S. Bernanke, the Federal Reserve chairman, recently encouraged banks to increase lending to small businesses. He firmly believes that small businesses are the key drivers to the US economy and where our road to economic recovery and reduced unemployment starts. Bernanke states that “while maintaining appropriate prudence” lenders should try to satisfy the needs of these small businesses because the well being of the banking system depends primarily on the banks “lending to small businesses that are well positioned to pay”. Job growth depends greatly on small businesses but it becomes difficult for these businesses to expand payroll if they do not have “sufficient access to credit” Bernanke says.

It is a known fact that that small businesses rely on financing much more than large companies. This financing help stabilize the business enough so that it increases employment, creating jobs for those who need it. Lending institutions must overcome the fear that small businesses will not pay off their debt and realize that it is needed for the economy.

Based on our application rates at AFS, we know the issue is not demand. Currently AFS is processing well over 1,000 applications per month, an all-time high. As I’ve stated before the issue now is supply of credit for small business. Bernanke further stated that lenders feel as if there is no longer a strong demand from creditworthy borrowers. He could not be further from the truth! We are seeing a dramatic rise in applications from bankable business clients with credit scores in excess of 750, two years operating history and decent business credit.

Furthermore, Fed bank presidents are contemplating the need to eventually raise interest rates. This needs to be done because of the record low interest rates now and to decrease the possibility of inflation. Doing so would constrict the supply of credit even further!

While we realize that the current state of business lending is a boom for our industry, a gradual overall increase in bank lending will benefit the entire economy. This will result in lower defaults for MCA funders and increase profitability with a stronger portfolio. The key will be capturing market share through reasonable pricing coupled with service.

Merchant Cash Advances Finally Becoming Mainstream

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The merchant cash advance product is finally becoming a mainstream product after 10 years. When American Finance Solutions started over four years ago this was definitely no the case! We spent most of our time explaining the product and educating business owners.

Over the past two years the MCA product has continued to gain popularity out of necessity. American Express recently published an article on its website highlighting several "alternative" financing products including: equipment lease back, traditional factoring and micro loans.

Most clients use the MCA as an alternative to a credit line that they used to get at their bank. Many people have questioned if the merchant cash advance is really an extended version of a credit line. Technically it is a factoring sales contract, the business owner is selling a portion of his credit card receivables at a discount. So the cost is strictly the discount that the business owner agrees to up front. An interest rate cannot even be calculated since the time period for collecting on the contract is open ended.

Yes, many clients use the product in lieu of a traditional credit line. Even when liquidity returns to the banking system, many clients will still opt for the MCA for its ease of accessing funds and payback method that is directly tied to the clients cash flow.

When Banks Say No To Small Business, American Finance Solutions and TransFirst Say Yes!

Even if you've been reading this blog for a month you know that small business owners are having crisis in accessing capital that has not been seen since the 1930s. I rarely use this blog in self promotion, but this week announced a very significant partnership that continues to fuel our growth.

American Finance Solutions, a leading provider of Merchant Cash Advances (MCA), and TransFirst, one of the nation’s top transaction processing solutions, are teaming up to provide small- and medium-sized business access to the
working capital they need. Through a joint referral relationship, TransFirst expands its product portfolio to include American Finance Solutions' Merchant Cash Advance product, helping clients' access capital quickly, despite tightening credit markets.

"TransFirst works with partners that demonstrate a track record of success," said Steve Rizzuto, President of Independent Sales Services for TransFirst. "We are happy to add American Finance Solutions to our suite of innovative, customer-based solutions. They have a unique funding product that provides our small business clients with capital in less than 48 hours. TransFirst will enable split funding for AFS’ product line of merchant cash advances and welcome their clients to our outstanding processing services”.

American Finance Solutions is proud to be partnered with a leader in the payment processing industry such as TransFirst. This was a win-win-win for TransFirst, their customers and AFS. We are happy to serve them, providing value-added benefits, and look forward to continued success in 2010 and beyond."

The Next Mortgage Crisis: Commercial!

A new mortgage crisis like the one that has devastated homeowners is hitting the nation's office and retail buildings. This new round of financial pain, which some had anticipated but hoped to avoid, now seems all but certain.

The last mortgage crisis in the residential sector of housing, really effected the larger banking institution who were highly exposed. Unfortunately in this next wave of foreclosures it is likely to swamp many smaller community banks across the country. Elizabeth Warren, Chairman of the Congressional Oversight Panel, the watchdog created by Congress to monitor the financial bailout, was recently quoted in saying, "There's been an enormous bubble in commercial real estate, and it has to come down. There will be significant bankruptcies among developers and significant failures among community banks." In all of 2009 there were 89 bank closures by the FDIC, through April 30 there have been 63 in 2010!

Unlike the largest banks that got into so much trouble early on, the community banks in general fared better in the residential mortgage crisis. Not only do community banks issue a higher proportion of commercial loans, but they also hold on to them rather than sell them to other investors. Nationwide, at least $1.4 trillion in commercial real estate debt is expected to roll over during the next three years. CoStar Group, a Bethesda real estate research company, estimates that half of commercial real estate mortgages will be underwater by the beginning of 2011.

Every dollar they lose in commercial real estate is a dollar they can't use for small businesses. That means if you thought capital is constricted for small business owners now, just wait six more months! It will be virtually gone from the traditional banking system. Alternative lending sources will see a huge uptick in demand and will become more the norm for business financing. I recently spoke to the top lending officer of one of the largest banks to find out the current criteria for qualifying for a small business loan. Here's what it is:

• In business for two-plus years
• FICO score for all business owners of 720 or higher
• No declining gross sales in the previous eight quarters
  

The last one is the killer, I personally do not know of many businesses that have experienced constant growth over the past two years! I guarantee that only a very small percentage of small- and medium-sized business owners qualify.

What does this all mean for the Merchant Cash Advance industry? Obviously growth and demand will continue and I expect the rate of demand to increase at a rapid pace. As more credit worthy clients choose the MCA as their financing tool, default rates will continue to drop. As the default rates drop, we can expect some new pricing/product models to develop to capture this new market. Bottom line, in the MCA's short history there has never been a better time to be involved in the business!

Franchise Failure Rates - Best and Worst

CNN Money just announced its top ten franchisees based on popularity as measured through the number of SBA loans over the past ten years. They also added another metric in the study by also calculating the default rate on these SBA loans to measure a failure rate. For the complete article you can click here.

Highlights of the top ten are:

1. Subway - Failure Rate 7%
2. Quiznos - Failure Rate 25%
3. UPS Store - Failure Rate 12%
4. Cold Stone Creamery - Failure Rate 31%
5. Dairy Queen - Failure Rate 8%
6. Dunkin Doughnuts - Failure Rate 8%
7. Super 8 Motels - Failure Rate 4%
8. Days Inn - Failure Rate 6%
9. Curves For Women - Failure Rate 16%
10. Matco Tools - Failure Rate 36%

Franchises are a great way for new business owners to start their own business and control their destiny. With a franchise you are given the playbook on operations, product/services offering, customer service, accounting; plus you have all the marketing support (usually the most difficult in starting a new business). Its like having an expert partner without giving up any equity.

When researching make sure you understand all the upfront and ongoing royalty costs. Yes they can be very expensive. As for Merchant Cash Advances, we are much more comfortable in extending credit to a franchisee due to all the benefits above. Also, a franchisee generally has much more invested in his business as compared to an independent business in the same space. This makes their commitment to the business and business model much stronger.

As a sales agent of MCA, don't forget to target these franchisees (especially those with low failure rates)! They are a great lead source and often yield repeat/referral business as once successful with one location a franchisee will open up several more locations (all require working capital to fuel their expansion).

Review Of ETA Show

This past week the Electronic Transaction Association (ETA) trade show was held for three days. This is the largest trade show in the US for the electronic payments industry. It offers a chance for the credit card processing industry to come together to learn about new products, services and technologies.

Of course the Merchant Cash Advance industry was well represented with four major funders sporting exhibit booths. It was great to see the MCA industry was alive and growing based on the displays.

Overall the show was well attended as compared to last year. The largest difference was the attitude and upbeat tone in 2010. Both exhibitors and attendees alike were talking about and planning on how to grow their businesses and invest in new technologies, products, etc to prepare for future growth. Gone was the talk of re-trenching, evaluating risk and pairing down to core products/services as in 2009. Many, including AFS, were inking new deals and or partnerships right on the trade show floor.

All were in agreement that the worst seems to behind us, but its still going to be a bumpy road for the immediate future and those of us that have survived are well poised for the long-term future.

AFS Launches New Agent Portal

American Finance Solutions launched a new Agent Portal in early April. Previously our Agents and Partners could only track their commissions through our website in real time.

We have taken the effort to roll out a complete support tool for our agents that allows them access to sales training, almost all of AFS' forms needed to submit and complete contracts, and all of our partner processing companies applications and supporting forms. The most significant piece is our FAST CASH contract generation.

The FAST CASH contract piece allows agents to create, save, print and email a complete PDF package to their clients in just minutes and auto attaches all the necessary partner processing forms as well. Agents simply log in to the portal, enter in their clients pertinent data (including the previous four months credit card processing volumes), select the partner processor who will doing collecting of the split withholding and hit submit. The system will auto-calculate how much the client qualifies for and create a complete submission package.

The entire process of generating contracts should take less than ten minutes after one becomes familiar with it. Hopefully this new tool will lead the industry again, in customer service by empowering our sales agents and giving them the ability to close more deals in less amount of time! AFS is really trying to deliver on the promise of "simplifying cash advance"

To learn more about partnering with American Finance Solutions please visit our website americanfinancesolutions.com or call 800-760-5516.

MCA Agents Getting More Diversified

The response to the last blog post on the current state of the merchant cash advance (MCA) agent landscape was overwhelming. Ninety-five percent positive and a few negative criticisms. Many of you emailed asking for more insight about the agent network. So here it goes.

American Finance Solutions as a funding company is seeing a more diverse agent network in the past 12 months. Yes, our core agents are traditional ISOs that sell credit card processing along side merchant cash advances. However, we are seeing the majority of new inquiries coming from those that have never represented the product and quite often they just learned about the MCA product through a client, friend of colleague.

So who are these new agents? Most often they are current financial advisers or offer ancillary financial services; such as accountants, CPA firms, business brokers and attorneys. As the popularity and acceptance of merchant cash advances grows, I think we'll see more and more of these types of agents offering MCA in their product mix.

These new agents do however offer new challenges to funding companies in the way of training. First off they've usually lack complete product knowledge and often confuse the MCA with a traditional credit line. I cannot count the number of times I've been on the phone with a CPA and say for the tenth time, "There is no interest rate!" It is important to have simple, step-by-step, training materials for this type of new agent. AFS recently rolled out a new Agent Portal which we've been told has the most comprehensive training materials in the industry.

The larger challenge is that these agents have never sold credit card processing. It is very difficult to successfully sell a MCA without selling processing (which in my opinion takes ten times the product knowledge with equipment, POS systems, rates, etc). To effectively sell you need to effective sell both products with the basics feature/benefits.

At American Finance Solutions we never take a cut of the processing and thus do not benefit financially from the processing. While we attempt to educate these new agents to the best of our ability, it is really in their best benefit to partner up or hire someone/processor with the experience in merchant services that will take the time and patience to show them the ropes. AFS has developed relationships with processors that have great training and customer support teams that take the time to walk new agents through the application, pricing and conversion process to signing up (known as "boarding" in the industry) new merchants.

While these agents do not provide the volume of applications and funded deals, they do tend to submit high quality deals that usually have an approval rate well above 75% which makes sense. Their current clientele is generally a more established, sophisticated client that cannot access capital as in previous years. Also, the clients are usually not seeking maximum cash from the MCA which allows for shorter expected payback times and thus lower factor rates (and much less risk for the funding company).

Funding companies may not see the sheer volume out of this agent network, but if we take the time to educate and train them, the quality of clientele and overall portfolio will improve.

MCA Sales Agent Landscape - Four Funders Agree!

This past week I had the pleasure of sitting down with one of our competitors for lunch. This smaller company is one of the few that has been able to successfully raise capital and grow smart and slow with ultra-conservative underwriting. Since then I've called a two of the CEOs of our larger competitors to talk shop with them and confirm the current state of the industry and most importantly the sales agent landscape for Merchant Cash Advance.

The largest surprise in the industry is that while demand for Merchant Cash Advance is rapidly increasing, the "traditional" agent network is shrinking. On average most funding companies have seen anywhere from 20 to 25% of their ISO agents going out of business. The good news is that the majority of these agents are those that jumped on the MCA bandwagon after the mortgage collapse.

Gone are most of the large, boiler rooms pounding the phones with press "1" campaigns that were slamming and jamming MCAs down merchants throats and forcefully taking large broker fees. The costs associated with running such operations are just too costly. What's left are ISOs that focus on processing, providing good customer service and offering MCAs when it makes sense for the merchant.

At AFS we've worked hard to deliver outstanding customer service (and yes we still have a long way to go) to our agents and its paid off well. Those agents that have really partnered with us now have impressive portfolios of 40, 50 and even 100-plus merchants that continually renew their merchant cash advances and payback terrific. We consistently are cutting renewal and residual checks in the five-figures to some agents (and that doesn't even count the processing residuals!)

If your selling MCA or considering selling MCA, I can't think of a better time. Product demand is on the rise, sales competition is decreasing and most funding companies that have survived are consistently approving and funding deals. One just needs to decide if they are going to be the hare or the turtle in the game. Yes, the hare gets off to a fast start and makes some quick bucks but soon things catch up to him. Meanwhile the turtle focusing on building a strong client base with integrity and customer service. We all know who ends up winning the race.

Roller Coaster Ride: The Current State Of Funding In The World Of MCA

If your selling Merchant Cash Advances, you know that it may seem like a roller coaster ride for the funding companies! While American Finance Solutions continues to consistently fund deals month-in-and-month out at the same rate, we are hearing a completely different story about much of the competition.

One of the larger players in our space recently got a fresh round of funding (a reported $20M) from their private investors and turned the faucet at full blast! Most of in the market place will know who it is. While that is great in the short-term for Agents, what happens when the money stream gets shut off (as it appears to abruptly have)? The key is to find good funding companies that are well financed, operate and underwrite in a consistent manner and are transparent in their deal guidelines and underwriting qualifications.

Those of you representing AFS know that we follow the above guidelines. From what I understand there are two or three other companies that do as well, such as AdvanceMe and BFS. Its interesting to note that the three companies with the best reputation on the street for consistent funding, also have traditional, institutional financing behind them.

This provides two key advantages:

1. It provides us with a low cost of funds, which results in a lower cost for the merchant and/or higher commission rates for the agents.


2. Our financing partners require us to maintain a solid portfolio of clients to protect our and their interest. This results in good operating standards, pricing, underwriting and customer service. Without it, bad debt starts to spiral out of control as soon as you turn on the funding spigot.

If you haven't figured it out by now, these two key advantages lead to long-term stability. Something that is important to remember when calculating your renewal and residual income which quickly grows to the mid- to high-four figures each month for most agents for some reaching into the five-figures each and every month.

Each funding company has it specialties and works in unique ways (such as set pricing programs that are a no-brainier to sell, custom pricing for seasonal merchants, starter advance programs, etc.) If your selling MCAs, its best to work with two or three good funding companies to concentrate your deals and get to know how they operate, what they like and most importantly know what will get funded to get you paid.

As always, AFS, welcomes all reputable agent inquiries, from those whom close a deal every quarter to those closing a couple a week.

Commercial Bank Lending Contracting At Record Pace Still

Despite the decision by Bernake’s desire to “normalize” the financial system by raising the discount rate last week, it’s clear that the credit crunch is not over — not by a long shot. Remember, the discount rate is the interest charged to large banks for direct, short-term loans from the Fed. But since banks are not lending right now; the move in the discount rate is simply not that significant.

In fact, discount window borrowing by large banks has plunged nearly 80% over the past year alone, to just $14.1 billion in loans outstanding as of February 17, down from $65.1 billion a year ago! In other words, since bank lending continues to drop at an alarming rate, banks simply don’t need to borrow from the Fed at low rates. In the last two weeks alone, U.S. bank lending contracted by nearly $40 billion. That brings the year-to-date decline to $115 billion, a record -14% annualized rate.

Since the credit crunch began $740 billion of total bank credit has disappeared from the financial system from a combination of loan loss charge offs, write-downs, and decreased demand for credit. If anything, the credit contraction is actually accelerating and unfortunately for business-owners growing more widespread with:

1. Consumer loans down 12% year over year
2. Credit card balances decreasing at a 28% yearly rate
3. Commercial and industrial loans falling at a 19.3% rate

What does this mean for us in the merchant cash advance industry? Increasing demand for the product obviously (and increase in all other alternative financing such as equipment leasing, traditional factoring, etc.) It also means that a new a whole new class of clientele will be seeking out an MCA. We are rapidly seeing clients with high-credit scores and well established business inquiring for funding. In the past, these clients would have secured a credit line or signature loan in a matter of days from their bank. The key of MCA companies and those selling the MCA will be to service this new clientele. They expect a higher level of customer service and integrity. For those that are willing to expend the time and energy to deliver the service, the rewards will be great.

AFS Announces New FAST CASH Finance Program

American Finance Solutions (AFS) is excited to announce upgrades to its FAST CASH financing program for small- and medium-sized businesses.

Starting Monday, February 8th AFS will be offering business up to $20,000 in financing within 48 to 72 hours without credit checks. As long as the businesses meet a few qualifications such as:

• In business for six (6) or more months
• Process a minimum of $5,000 per month in Visa/Mastcard/Discover and Debit card transactions and batch a minimum of 15 times per month
  
• Not more than 30 days behind on the business' lease or mortgage
• Do not have a current merchant cash advance
• Do not have pending or open bankruptcy for the business or any business owner
  

and can get approved with an AFS-partner credit card processor they are approved!

Initially, each business will qualify for 20 percent of its credit card processing volume with a minimum amount of $2,500 and a maximum of $20,000. After successfully completing merchant cash advance contract each business will be eligible for additional financing amounts to a maximum of $60,000.

For more details you can visit us on the web at FAST CASH or to learn more about becoming a partner for AFS-partner to offer our financing service please visit our Partner Page.

The Credit Crunch Continues...

JP Morgan Chase was the first of the major banks to report its earnings last Friday, January 15th. While the overall picture was rosy with the company reporting profits of $3.3 billion, well above Wall Streets expectations.

Normally, this would signal a strong recovery for the banking industry and the economy as a whole. When banks are making money (by lending out capital to both consumers and businesses), generally the entire economy is making money. When you look deeper into the numbers, the picture is not a rosy.

We had been hoping that the banks credit costs/expenses would be leveling off and send a strong signal of recovery. The investment banking division posted virtually all of the companies profits versus any of the companies traditional lending.

* Chase reported steep loses on its credit card loans

* Losses on prime mortgages almost tripled to $568 million compared to a year earlier.

* Total credit losses ticked downward to $7.8 billion from a high of $8.1 billion in the third quarter.

* Most importantly for our industry, wholesale (business) loan portfolios declined 22 percent compared to the fourth quarter last year.

Ralph Cole, portfolio manager at Ferguson Wellman Capital Management, was quoted by Reuters as saying "Consumer credit may be close to a bottom here, but it's not getting better, and people wanted JPMorgan to say it's getting better." JP Morgan's projections for 2010 were not even optimistic with Chief Executive Jamie Dimon saying on the conference call, "We don't know when the recovery is."

The credit crunch is still getting worse, not better. This will continue to drive growth for the Merchant Cash Advance industry out of sheer necessity. Other alternative financial products such as traditional factoring, equipment leaseback, etc. will also benefit from all the demand.

Citibank and Bank of American are due to report this week, and I expect similar results.

Goodbye 2009, Hello 2010!

Many are happy to say good bye to 2009, including many of our competitors in the merchant cash advance space which did not live to see 2010! It was definitely a year that started off slow and then really finished with a bang.

We started with the hang over of 2008, that saw many business owners struggling to generate revenue and fighting to stay alive. For many financing companies (including those in the merchant cash advance space) this drastically increased their bad debt. Reports on the street are that some saw bad debt levels exceed 20%! Obviously with those kinds of defaults one cannot survive.

Often during 2008 and into early 2009, we at American Finance Solutions would hear from our sales partners, "Company X was offering a client $50,000, can't you match the deal?" Luckily AFS had tightened up its guidelines in early-08, and our response was, "We can match it, if you don't want us to be around to pay you residuals!"

Slowly things started to stabilize and the shakeout continued in the MCA-business on both the funding side and the agent side. As funding companies tightened up across the board, making better decisions for themselves and the industry, the sales process became more challenging. Agents actually had to build re pore with clients, thoroughly explain the product and the corresponding method of repayment. This caused an even greater shakeout for the sales channel.

We saw a mass departure of the previous mortgage brokers who were looking for more easy money. Call center boiler rooms found that they couldn't generate enough revenue to keep their dialer going. Then end result has left us with a higher caliber and ethical sales channel across the board.

Around July, business owners realized that the worst was over and now its time to investing in their businesses. We saw gradual increase in demand for working capital. However the source for capital is nearly non-existent except for those with perfect credit and have been in business for five-plus years operating in an acceptable industry. This left a huge void that the remaining funding companies are trying to fill.

The last quarter of 2009 saw all time funding levels for AFS with December 2009 setting a funding record. With no end in sight of the credit crunch, we expect the demand and usage of the merchant cash advance product to proliferate. The best news is that in our industries relatively short-time period there has never been a more qualified/experienced sales force.

For 2010, AFS expects to see consumer confidence slowly increase, most likely increase at a painfully slow rate. Business owners recognize that they've made it through the worst and have made the necessary adjustments to decrease expenses and increase revenue. They in turn will slowly continue grow and seek capital to achieve this growth. Keep in mind this will not be a smooth road, but a rather bumpy one. As for the funding companies, expect a little more shakeout with some that are still struggling with portfolios of contract that show the errors in guidelines and underwriting past. I expect that we will see some consolidation in the industry to take advantage of scale of operation. However, its a still a relatively young industry with opportunity for both the large and small funding companies out there.

To all our blog readers, we wish you a prosperous 2010!