January 30, 2011

Limitations Of The Merchant Cash Advance Product


The recent slight rebound in the United States macro-economic climate has resulted in a lot of entrepreneurs seeking working capital for their businesses. As a result of this, most smart entrepreneurs have already or are in the process of analyzing the different business cash options that are open to them other than the banks which are still on lock down for small business loans. When theses business owners do Google searches they find lots of information from the hundreds of sellers on the advantages and benefits but none on some of the limitations.

At American Finance Solutions, we like to give our clients the complete picture of all the pros and cons so that a business owner can make a intelligent decision on offers. I will try to summarize the cons and limitations which can be divided into three major areas:

1. Cost - The factor rate of a merchant cash advance is much higher than a traditional SBA or business bank loan. The primary reason for the higher rates is that the funding companies are taking much more risk with low documentation, unsecured financing and compared to conventional loans. This is also one of its advantages as the due diligence or underwriting criteria allows many more business owners access to capital. The basic market forces of supply and demand still apply to MCA financing, so it pays for business owners to shop around and find a good rate with minimal out of pocket fees.

2. Qualification - This area can be broken down into two sub-sections of qualifying for an MCA outright and how much a business qualifies for in funding. As a start up, for a businesses first location you will not be able to use a merchant cash advance because there is no sales history for the funding company to base its expected collection for credit card sales. You will need a minimum of four months credit card processing history to qualify. In addition, a business needs to have some minimum level of credit card processing volume, most funding companies require $3,000 to $5,000 per month to guarantee some form of payment.

How much a business owner qualifies for can be based on several different criteria that varies for each financing company. Most reputable companies base the amount financed on a combination of total sales, acceptable remittance rates for the businesses SIC classification and overall affordability on personal/business criteria. As always, your best bet is to negotiate the best contract that minimizes the impact of payback on the businesses cash flow. We've seen too many good business owners pushed into bad contracts that take too much from a business credit card receipts and forced to close.

3. Consistency - When applying for a business cash advance give the funding company the complete story of your business so that they can create a contract customized for the volume of your credit card receipts. After the contract is funded as a financing company we expect consistent volume for expected repayment. Due to fraud by less than honest merchants, the funding companies know that if your volume drops more than ten to 15 percent that the business owner is diverting sales and violating the terms. This results in getting black listed by the industry, unpleasant phone calls for the collection departments and usually penalties and automatic ACH payments being deducted from the business' bank accounts. Make sure you read all the find print of the contract and have all questions answered directly by the funding company! At AFS we actually prefer it when a potential client asks for clarification and understands all the responsibilities of us and them. It always results in a smooth contract and happy customers that almost always repeat.

If you business is seasonal let the funding company know ahead of time. American Finance Solutions is the specialist in providing merchant cash advances for seasonal business. We usually request 12 months of your previous credit card processing statements. This allows us to set the correct expected payback each month and then build a contract that works for both parties.

There are a few other limitations that we usually specialized to a specific industry or other factor. But the above covers 90 percent of the cons.

January 24, 2011

AFS Exhibiting At The Northeast Acquires Show












American Finance Solutions will be exhibiting this week at the Northeast Acquirers Association trade show. The event is being held January 25th through January 27th at the Grand Summit Resort in Mt. Snow Vermont.

If attending please stop by and visit our exhibit booth and learn about our new commission structures on Fast Cash contracts and upcoming participation by for co-funding your own merchants.

We look forward to seeing all of current sales agents and hopefully finding a few more.

January 16, 2011

Turning The Corner In 2011

Recently both Wells Fargo and Chase banks published their 2011 Economic Outlook reports. Both of these reports (and many others, from other respected firms) almost mirrored each other. The overall theme is that 2011 is the year that the US economy begins to turn the corner and slowly, oh so very slowly, start the path to recovery.

Below is a synopsis of both reports and the most important aspects that relate to our small- and medium-sized business owners:

  • Consumer spending, representing the majority of aggregate demand in the US will benefit from a streak of positive reading by mid-2011 in the form of lower unemployment rates and rising real personal income
  • Personal income is up 4.1 percent year-over-year compared to a decline of 2.1 percent last year at this time, so the increase in spending is not as strong as in past economic recoveries
  • Extension of the Bush-era tax cuts and the two percent reduction in the payroll tax will spur businesses to add to their payrolls as the slow economic recovery continues
  • Households are right-sizing their debt load and this behavior will remain persistent for many years, so much of the increase in consumer income will go to lowering debt rather than increased consumption as in past recoveries
  • Big business is also moving forward with stalled projects, building out retail and distribution networks and supported by signs of bottoming of nonresidential construction

Most of our clients have been saying the above in their own words for the past quarter, "Hey, its starting to slowly get better." And I'm sure that most merchant cash advance funders are starting to hear the same as American Finance Solutions does from its clients' need for cash, "Hey, I've got this opportunity that I want to take advantage of...." For those of you agents selling the MCA, it may be time to change your sales approach from, "what problem do you need to fix with funding" to "what opportunities do you want to take advantage of"

AFS has started 2011 with record fundings in the first two weeks as well. Yes, its only been two weeks, but its already starting out to be great year.

January 11, 2011

Fast Start To 2011 With AFS' Fast Cash Promotion

Last year was a record breaking year for American Finance Solutions. We funded well over a 1,000 contracts and are looking to double that amount for 2011! To get the year started off right, AFS has announced a new sales promotion.

For all new merchants funded now through February 28th, 2011 on our Fast Cash contracts will earn the following commissions.
  • Increased commissions of 10% on the contract purchase price

  • Earn an extra 2% Commission Bonus when agents self generate their contracts through the AFS Fast Cash Portal
That is a total commission of 12%, and its all up front! No need to wait until the merchant repays to get your cash. Don't forget that all Fast Cash contracts must be set up for split withholding through an AFS-approved processor (so no ACH or lockbox collection methods) and a merchant must process a minimum average of $5,000 per month with 15 batches per month or more.

If you are already an agent or reseller and need training on the Portal to generate contracts please attend one of our training sessions. Or you can always reach out to your Account Executive for a quick refresher. For new agents and resellers that want to get in on the action please give us a call or email to discuss becoming a partner. Please note that AFS does a background check on all new agents and demands that our MCA product be represented ethically and according to NAMAA Best Practices Guidelines.