Gearing Up For The "Other" Spending Season

The Holiday Season for 2012 is turning out to be much better than expected for our retail clients.  Initial reports are showing improvement in sales at approximately 15 percent higher than 2011.  Many of our sales partners successfully capitalized on this and added a large number of retail businesses in the 3 Quarter and beginning of 4th Quarter to their client portfolios.  American Finance Solutions saw strong demand for working capital as retailers stocked up on inventory and took advantage of pricing discounts by pre-paying for their orders.

Now, many are relaxing and getting ready to enjoy the holidays themselves!  Well don't relax too much.  Historically December and January have been record breaking months for the merchant cash advance space as seasonal businesses get ready for their busy Winter seasons.

Obviously our sales partners will not have much success marketing to retailers you a flush full of cash.  Now is the time to mix up the marketing and target these seasonal businesses that have a real need for working capital.  A list of the obvious includes the following, but many, many more exist for those that want to get creative:

• Anything to do with alpine winter sports
• Snowmobile repair
• Snowplow services
• Chimney sweeping
• Warm climate tourist and hospitality (think Florida!)
• Florists (Valentine's Day, Mothers Day always seems to come sooner than expected)
• Bowling alleys in cold climates
• Tax services

Now when targeting these businesses most finance companies are going to want to see a full year's worth of bank and processing statements.  Make sure you get those up front from the client.  It is always easier to get the information for pre-approvals the first time.  Explain to your clients that the funding company will be able to more accurately determine cash flow for repayment and offer the client the best terms going into a busy season.  Many will be surprised by the relatively inexpensive offers for these types of clients.

As always, AFS looks forward to receiving your client application and funding your deals in record time.

Some Small Businesses Embracing Economic Recovery

The National Federation of Independent Business and National Association of Manufactures recently released their 3Q Survey on the opinions and state of the economy.

The good and the bad news is that 35% of small businesses agree with the statement "my company is now operating for the standpoint that there is enough economic opportunity in the market today to expand, grow or hire new workers."  This is good, since 35% (over one third) of businesses see the light at the end of the economic tunnel.  This figure indicates large increases for previous surveys, especially those from 2011.

The bad news is that the increase is not as large as most had hoped for.  While the number show improvement, it continues to show that things are slowly (very slowly) starting to improve.  If you take the time to read through the survey, the majority of reasons for business owners not wanting to expand is Federal, State and Local government policy, taxation, regulation and uncertainty.  These were the number two and three reasons for not investing or expanding business behind employee health care costs.

For what I can remember as a first, small business owners reported that they felt both China and India were more supportive to entrepreneurship than the United States!  We at American Finance Solutions hear the same through our client base for both old and new.  Across all geographic and industry types, business owners just want to know with some level of reasonable confidence what the future has inshore on both a Federal and local level.  Most have lost their faith in the political system, no matter what party they belong in, to operate efficiently and come up with some type of economic plan.

This same uncertainty also plagues mainstream financing such as banks, traditional asset-based lenders, etc, keeping demand for alternative lenders such as merchant cash advance filling the need for the 35% of small business that see the light.  With this increase demand the MCA space will see continued new products with customized rates, terms and other attributes to fulfill specific niches.

As always, American Finance Solutions, continues to provide financing to Main Street by putting the client first and custom pricing each contract to meet each client's individual needs and help them reach the light!

Housing Recovery Opens Up The Door For Home Improvement

Traditionally the home improvement industry has been on many Merchant Cash Advance funding companies prohibited list.  Especially the "old timers" that have been around since pre-2008 when the economic downturn started.  This industry got absolutely hammered resulting in very high default ratios.

Across the country the housing recovery is starting to happen.  The first homes that are being purchased are the foreclosures, auctions and short sales and these homes need the most "home improvement" to get them back in livable or rent able condition.  Typically this requires the services of the following:

• Plumbers
• Flooring
• Painters
• Kitchen re modelers
• Stone and masonry
• Pool and spa
• Heating and air conditioning (HVAC)
• Window and garage door replacement

Business that survived in home improvement and construction are now experiencing strong demand and are in search of financing to fund raw materials for their jobs.  For those business owners that survived and have decent operations now is the time to take advantage of the market and make up for the previous lean years.

Here at American Finance Solutions we have been ahead of the curve and been financing these business types over the past 24 months.  In fact these industries are turning out to now have some of the lowest default rates as well.  Clients in this segment will need to be somewhat established with a 24 month track record, but only a 500 minimum FICO is required, and the provide 12 months of bank or credit card statements since in many areas of the country their business is seasonal.

As always, AFS looks forward to assisting both our clients, partners and agents will financing solutions that are merchant-centric and building long term value.

Over 40 Percent Of Small Business Owners Plan On Investing

Wells Fargo just recently release a Gallup Report that small business owners' outlook on capital expenditures is unlikely to change before the presidential election in November, given the massive uncertainties in the US economy.  It also indicated that small businesses are approaching 2013 very cautiously.

The survey found that while 41 percent of them are planning on making capital improvements, this level is 12 points lower than they made in the past year.  One highlight is that most will investing in new equipment.  Over a majority, 57 percent to be exact, stated that they will not be making new investment into their business next year.

The Gallup report said "small business owners as they consider making capital investments over the next 12 months are consistent with the overall decline in owner optimism since April.  Then also seem consistent with the slowing of the overall United States economy as well as declining economic confidence and a worsening unemployment situation."

For our valued partners and resellers of our financial products this report may seem doom and gloom. However, while the decline in our client base outlook is not good, it does show that over 40 percent of our client base will be very receptive to financing offers.  In addition, focus you pitch on getting new equipment to meet the majority of their needs to keep you sales pipelines full!

AFS Recognized As One Of The Fastest Growing Private Companies

American Finance Solutions, one of the fastest growing merchant cash advance companies for small and mid-sized businesses, was named the 24th fastest growing private company in Orange County, California by the Orange County Business Journal for 2012.  We achieved this with dramatic revenue growth of 272.5% in the past two years and an increase in employee headcount of 70%.

We have proven ourselves again as a key financial resource for small businesses often overlooked by traditional banks, which often only examine assets and personal credit scores. AFS applies a holistic approach to determine the funding amount, based on a small business’s overall health.  Using its proprietary pricing and risk algorithm, AFS creates custom-tailored, low-risk funding programs for each merchant.

The Orange County Business Journal’s recognition of AFS is a attribute our strong growth to our talented team who provide exceptional ‘white glove’ customer service and transparent counsel for our merchants. This accolade further validates our merchant-centric solution to helping small businesses secure capital and grow.

The list ranked 154 private companies based in Orange County by revenue growth over two years, from June 2010 through June 2012.  Each company had minimum sales of $300,000 for 12 months through June 2010.  The list includes only privately held companies, those owned by individuals, families, private equity or other investors.

Manta & NFIB Surveys Indicate Dropping Small Business Confidence

The majority of small business owners remain optimistic about the post-presidential economic outlook, but not as optimistic as they were 3 months ago. According to surveys conducted by Manta in May and August 2012, the amount of small business owners who have an optimistic outlook regarding the post-presidential election economy has declined 6% in the past three months (65% in May vs. 59% in August).

NFIB Survey Shows Small Business Owner Optimism Declining, Again!

The National Federation of Independent Business (NFIB) Small Business Economic Trends monthly survey results for July saw small business owner optimism drop for the third straight month. In April 2012, small business owner optimism was equal to the highest level it had been at since December 2007; however, in the three months since, optimism levels have declined to the lowest levels since November 2011.

MCA Versus Bank Approval Rates

Small-business loan approval rates by community banks and non-bank lenders spiked in January to their highest levels in the past 12 months, according to the monthly Small Business Lending Index, which analyzes loan applications through Biz2credit.com, which connects borrowers with more than 1,100 lenders nationwide.

This is obviously due to the strong demand that all alternative lenders are seeing in the marketplace. At American Finance Solutions, we have experienced a large spike in applications in the first quarter of 2012. Most of our competition is seeing the same as well.
Alternative lenders in particular -- Community Development Financial Institutions, accounts receivable financing companies, merchant cash advance companies, micro-lenders and others -- approved more than two-thirds of applications from potential borrowers according to Biz2credit. That compares with the approximately 47.5% of loan applications approved by small community banks and just 11.7% approved in January by banks with more than $10 billion in assets, Biz2Credit says.
So, I think an agent or funding company can safely say that MCA approval rates are well North of 70% compared to bank approval rates of approximately 12%. At AFS we also believe that the amount of capital that a business owner receives is also much higher with a merchant cash advance.
"Over the last three and a half years, a lot of banks have shrunk their branch network. That has disrupted the old relationship dynamic and created a huge vacuum in the market for working capital for businesses to run their day-to-day business," Biz2Credit CEO Rohit Arora says. That led to the rise of alternative lenders. Initially it was some of the CDFIs, micro-lenders and credit unions, types of lenders without much experience in such things as cash advances and factoring, Arora says.
"Over the last year what we are starting to see is that kind of funding is coming from more mainstream lenders because of all these different reasons. It is also creating the pressure on the banks and other institution to go out and start lending again to businesses," Arora says.
While there is definite pressure on big banks to open up their vaults, we do not expect any significant changes until well into 2013. Its a great time to be marketing the Merchant Cash Advance product and building a client-base!

Small Business Failures Up 48%

The number of small businesses going bankrupt jumped by 48 per cent over the last 12 months according to Dunn & Bradstreet. More alarming is that small business start-ups fell by 95 per cent over the same period.

Dun & Bradstreet's analysis found that across the economy, business failures were down 10 per cent on the September quarter 2011, but up more than 40 per cent for the year. This coincides with Dun & Bradstreet's downgrades during the December quarter of more than 128,000 firms that are likely to experience financial distress over the coming twelve months.

According to Dun & Bradstreet CEO, Christine Christian, business failures have trended steadily upwards since 2008, growing over 30 per cent in the last three years.

You'll notice in the D&B supplied graphic that the segment of MCA-target market (businesses with less than 20 employees) has seen the greatest hit in business failures.

Key findings of the D&B Business Failures and Start-ups Analysis for the December quarter 2011:

• Nationwide, insolvencies rose 42 per cent year-on-year while the number of new businesses fell 11 per cent over the same period;
• Small business failures grew 57 per cent over the year among firms with less than five employees and 40 per cent over the year among firms with six to 19 employees;
• Small business start-ups among firms with less than five employees fell 95 per cent in the year;
• Start-ups during the December quarter in the manufacturing, service and finance sectors fell by nearly 100 per cent.

This type of data will continue to keep the big banks out of the small business financing arena. Which is good for Merchant Cash demand. However, if a current client or agent selling the MCA product, you have to be concerned with the stability of your current MCA funding company. A few recent failures/reorganizations by a some mid-sized funding companies are just the start of more to come.

Ask the difficult questions of your funding partner? What is their source of funds? What are their delinquency rates? How long have they been funding for? The more experience, the better the funding company is at measuring risk and pricing across their portfolio of contracts for long-term profitability and sustainability.

If you sense you're getting the run around when asking the above, you better start running in the other direction!

As always, American Finance Solutions is here to fund our clients and ensure our resellers/partners are always compensated!

2012 Outlook For Merchant Cash Advance

2012 is definitely shaping up to surpass 2011's record sales pace. Not only will the demand continue, according to the latest market surveys we expect it to increase dramatically. The latest Wells Fargo/Gallup Small Business Survey conducted in January shows that small business assessments of the US economy grew to its highest mark since before the financial crisis hit in 2008. Most importantly this renewed optimism coincides with other improved economic news, such as lower jobless claims and higher equity markets.

Strengthening revenues, both in the current and future expectations of business owners will greatly influence small business's upcoming decisions about investment, hiring and most important for us financing. While a net percent of companies reported a decrease in capital expenditures over the past 12 months, the gap has been narrowing.

Specifically, small business expecting to hire mew employees over the next year jumped from 15 percent to 22 percent, while the number of small business expecting future employment to decrease fell to its lowest rate since the 2007 recession began. FYI, our MCA client-base, businesses with less than 50 employees account for nearly half of the total expected employment!

The other factor that will drive demand is the Federal Reserve's renewed commitment to keep the cost of borrowing at record lows for all of 2012. This means almost guarantees that traditional lending will continue its severe constriction. Many expect the Fed to keep rates low through 2013 and even into 2014.

For 2012 we'll have the best of both worlds with the same supply constraints of 2011 coupled with drastically increasing demand. If you thought 2011 was a good, hold on because 2012 will be great!

As always, we look forward to funding all of your deals, and a prosperous New Year.

AFS Opens East Coast Office

AFS is proud to announce that after five years in sunny Los Angeles, we have finally opened our first East Coast office. More importantly, we have added another valuable member to the AFS team.

We are pleased to announce that Mike Steeneck, an industry veteran with years of experience in the payment processing and alternative funding arena has joined AFS as Vice President of Business Development. Many of you know Mike from his last position as EVP/COO of OnePay. Mike has also held positions as President of Business Development at AdvanceMe and Senior Vice President of Sales and Acquisitions at First Data where he successfully launched many newly formed business units.

Mike's focus will be on building relationships with East Coast ISOs and processors nationwide. In addition, Mike will be instrumental in crafting sales strategy and product development as AFS enters new markets and diversifies its sales channel. Most importantly, Mike will work closely with our existing and new ISO partners to increase sales and help AFS build on its reputation as the funding source of choice.

Mike brings tremendous experience and expertise to AFS and we're thrilled to have him. Mike can be reached directly at 800-760-5516, ext 141 or by email at msteeneck@americanfinancesolutions.com