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.