Latest Experian Business Benchmark Report Confirms That We're Bouncing Along The Bottom

Last week Experian released its 2nd Quarter Business Benchmark Report. The report reveals nothing unexpected and confirms that our US business climate continues to bounce along the bottom of a recession recovery. American Finance Solutions and other MCA funders play close attention to these trends to make subtle adjustments to their pricing calculators for risk and expected pay back of contracts.

Overall most businesses became somewhat more delinquent on their debts and are stretching out their days-beyond-terms. As for relevancy to the Merchant Cash Advance was the discrepancy between business size. Large business, defined as those with over 1,000 employees, had a huge increase in delinquency. Obviously, these types of business are not MCA clients. Small- and medium-sized businesses either improved their delinquency or had a minimal decline.

The report also reports delinquency by business type. Merchant Cash Advance core business types also had minimal changes to delinquency ratings. Hospitality, retail & services all continue to show steady as she goes, with neither improvement or decline in financial health as sectors.

What does this all mean for our Merchant Cash Advance industry? The trends of increased demand will continue for the short- and medium-term. Risk to funding companies, such as American Finance Solutions, on a whole should see slight improvement. Expect smart industry players, (agents, resellers and funding companies) to aggressively capitalize on a great opportunity to build revenue and market share.

As for pricing, I expect to see little change as demand pushes up some and the continuation of low bad debt will allow funding companies to cut margins some to increase volume. The two should offset each other.

It continues to look like merchant cash advance will be a strong and viable industry to provide small- and medium-sized companies with working capital! As always, American Finance Solutions looks forward to funding all your contracts.

American Finance Solutions Launches New Franchise Working Capital Program

At American Finance Solutions, we recently launched a new Fast Funding program for franchise owners. In the first week the program has been very successful with $500,000 in funding of working capital and another $600,000 in the due diligence phase. Even better than the funding amounts has been the client reaction to the speed of funding. All contracts were funded within 72 hours of receiving contracts back from clients (with required supporting documents of course).

To qualify for the program the business owner needs to own and operate a known franchise. Be in business for at least one day, have or expect credit card processing of at least $5,000 per month, not be behind on rent/mortgage/franchiser fees for more than 30 days, not be in bankruptcy proceedings personally or for the business and have a personal FICO score over 500. So almost all franchises qualify!

Details of the funding programs are as follows:

1. Funding amounts available from $10,000 to $200,000 per location
2. Factor rates range from 1.2 to 1.35 with up to 12 month expected payback
3. Split, lock box and a fixed ACH payback are all available and are the merchants choice (of course ACH requires clean bank statements)

4. Must submit franchisee agreement with contact info, otherwise all normal documentation is all that is needed (business license, voided check, 2 months bank account statements and drivers license for all owners)

If you own a franchise and are looking for working capital at reasonable rates, please give us a call. Or if you are an agent or reseller for Merchant Cash Advance, then give us an email or call at American Finance Solutions to learn more about becoming a partner.

Which Businesses Agents Should Target In An Economic Downturn

As our economic times get more challenging again, the demand for the Merchant Cash Advance product and other alternative sources for working capital will see great increases in demand. If you are selling the MCA product its a great time to seize this opportunity and build your client portfolio. The key will be targeting the right clients that will have the highest chance of getting approvals from American Finance Solutions and other funding companies.

By crafting and targeting your marketing effort you'll greatly increase your return-on-investment for your marketing dollars. Put yourself in the funding companies shoes. Which clients would you want to put your capital at risk with?

1. Recession Proof Businesses are the obvious choice. Just a few of them are:

• Low Ticket Restaurants - People still eat out in tough times, they just go to restaurants that they can afford. The middle market (entree price of $12 to $20 will get crushed once again).
• Auto Repair - People cannot afford a new car, but will plow a few extra bucks into their current vehicle to keep it running.
• Health Care - Dentists are a great example of how medical is generally recession proof. Nothing else makes a client whip out their credit card faster than pain avoidance!
• Liquor/Tobacco Stores - Vices are usually the last thing one gives up, enough said.
• Convenience Stores - When people feel poor (or less wealthy) they'll avoid big trips to the supermarket where they outlay $200 and opt for spending $40 with frequent stops a the local C-store.
• Mini-Escapes - Day spas and nail salons thrive during these times. Instead of spending a weekend at the shore, they do a spa day for the ladies why the guys hit the links (we absolutely love funding golf courses at AFS!)

2. Established Businesses

• Obviously a business with a multi-year track record and established clientèle is much more attractive.
• Clients using funds to take advantage of opportunity of buying a competitor or taking over the space of a failed rival.
• Business where the owner also owns the real estate have much more skin in the game as compared to those that lease. At AFS our risk-based pricing gives major points for this!
• Steady sales for a client goes a long way with funding companies. A business that consistently does $20,000 a month is much more desirable than the one that fluctuates wildly.

By utilizing the above targets and executing efficiently (closing) you'll maximize the most from the current opportunity in the MCA space.

Not Just Surviving, But Thriving In Recession

Unfortunately what is bad for the overall economy ends up being good for the Merchant Cash Advance industry. When the economy starts shrinking, traditional lending sources start drying up quickly, and when available the cost goes up. That forces those that need capital to turn to alternative sources.

The political events over the past week coupled with the stock market realizing the reality of the American economy has us in store for our second dip in the waters of economic recession, in my opinion. With unemployment (true unemployment is definitely above 15% and if you want estimate under/unemployment some experts are quoting 20%+) showing no signs of recovery, government stimulus spending coming to end and definitely more foreclosures in residential real estate (and the shoe hasn't even begun to drop in commercial!); its hard to refute that the next 18 months will be tough.

The end result will be significant growth for alternative lenders with Merchant Cash Advance and its ancillary products thriving. The number one reason will be pure demand and lack of suppliers. Obviously the demand will be there just as it was in 2008 when the last recession started. However, I believe the suppliers will not come rushing in as they did previously. You need dump trucks full of cash to become a serious player in this market and if you think its tough raising money for your traditional business or hot Internet start up. Imagine going out to the capital markets and saying, "I need cash to finance working capital in the sub-prime, small-business market and oh yeah, most of my clients are sub-700 FICO with no assets."

Another reason is that MCA will thrive is that funding companies will be able to easily pass along their increased cost of capital to their clients. With a typical factor rate now being 1.32, its not that difficult for a client to swallow 1.35 at the same terms. Even if real interest rates double or triple, I expect the effects to be negligible.

The key will be the qualification and underwriting criteria that the funding companies follow. In 2008, the MCA landscape was like the Wild West with anyone who had a business getting funding. The ten major funders left, American Finance Solutions included, learned their lessons the hard way. Expect most to focus on SIC codes and business models that "make sense" in a recession. More on that in my next post.