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!
