Banks across the county are slowly starting to open their coffers to small business. This is a good sign for the US economy and the merchant cash advance space. The big financial institutions always seem to lag six months behind the more nimble niche players.While lending by the big boys continue to fall as illustrated by the graphs, it does appear that a comeback is in the works.
We've been blogging now since 3Q 2010 that demand is increasing from our merchants and believe the pace of demand will continue to grow as well. Expect the banks to have minimal impact on MCAs as they will only loan money to well established business that have assets to back up the financing. The core MCA-client base of younger, non-asset based merchants will still get the doors of the banks slammed shut, unless they have significant personal assets and near-perfect credit scores.
Below is a synopsis from a recent Wall Street Journal article of recent banks focus on lending to small- and medium-sized businesses:
- Federal Reserve said 10% of large U.S. banks reported easing loan terms for small businesses in the past three months, compared with nearly 20% for medium-size or large companies.
- The number of small-business loans and lines of credit made in the third quarter are down more than 70% from their pre-crisis peaks, according to Equifax Inc. and Small Business Financial Exchange.
- Bank of America has promised to add 1,000 small-business bankers during the next 18 months.
- U.S. Bancorp began training employees at nearly all of its 773 branches in supermarkets on how to make small-business loans and added 100 private bankers to sell loans to doctors, lawyers and other small-business owners.
- Small-business loan-approval rates at Wells Fargo “are well up” compared with early 2010 as more firms try to seize on new business opportunities rather than keep themselves afloat, said Marc Bernstein, an executive vice president at the San Francisco bank. In the fourth quarter, Wells Fargo made $4.6 billion in loans to businesses with revenues of $20 million or less, up 18% from a year earlier.
- At Huntington, bankers dedicated four straight days in January to making calls to prospective small-business borrowers. They usually zero in on them for one day a month.
We firmly believe that this activity will aid our agents and resellers in selling the MCA product as well. With banks marketing, many merchants will be more receptive to taking on debt and financing hopefully opening up the door to make a proposal. The key will be positioning and selling on value, service and speed versus price.
For the funders of MCA, we are starting to see new class of clientele that has not been anxious to get funding due to desperation. The result seems to be a more established, lower risk merchant base that has thoroughly planned for use of the funds. Which will hopefully lead to lower default rates which is good for everyone (funders, agent and the clients)!
