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.

Latina Business Owners Exploding!

American Finance Solutions has always had a very strong presence in the Latina community. Being in Southern California, with a high concentration of Latina businesses, we know how important and vital this client-base is to our business.

The U.S. Census Bureau statistics show Latinas are starting their own businesses at six time the national average. From 1997 to 2006, the number of Latina-owned firms increased by 121%. What is significant is that Latina business owners have quickly moved beyond the local restaurant and markets. At AFS we have seen significant strides that Latina owners are making in manufacturing, business services and retail.

What is important when marketing and servicing your Latina-client base, is doing it on their terms. Roughly 50% of our latina-client base, prefers to communicate in their native Spanish-language, even though they speak perfect or near-perfect English. So if you have this skill set as an agent, you're already half way home to the sale.

In addition, our Latina-clients are extremely loyal and honest. If you take care of your Latina-business owners, they will take very good care of you with continual repeat business and an almost endless supply of referrals. If you charge bogus fees, overcharge for equipment, hide ancillary prices; they will quickly leave and not be shy at all in telling all their friends and fellow business owners.

At American Finance Solutions, this target market has the lowest default ratio; making them very attractive to finance! In addition, Latina-business owners often do not have a strong banking history with traditional financial institutions; making the merchant cash advance product a perfect fit for them.

Light At The End Of The Tunnel

It appears that the light at the end of the tunnel for small business is now insight (and the good news is that it is not a train heading towards us!). The National Federation of Independent Business recently announced its Optimism Index for October 2010. The good news is that the index increased from Septembers 89 to a 91.7.

What is significant about the number is that is a move in the positive direction, and a rise of nearly three points is significant. Unfortunately its not a large move. The index averaged above 100 points for the five years before the recession and has been sub-93 since January 2008, to give you reference points.

Small business owners are acknowledging that the most is behind them and we are slowly starting to recover, see some limited growth and a little optimism. Most though agree that their is light, but the tunnel is very, very long. The announcement also stated the only seven percent of business owners thought it is a good opportunity to expand and grow; and 73 percent reporting that now is not the time to grow.

We at American Finance Solutions, firmly believe that the next two to three years will see slow consistent recovery with some bumps along the way. This slow growth has definitely started and we see it with the increased demand in our merchant cash advance product line up. Good news for us and our agents is that the grow will continue at a nice pace.

Economic Stimulus: Success Or Failure?

Often we hear from our small business clients about the State Of The Union and Washington's policies. In talking with hundreds of small business owners we have never seen an almost unanimous opinion: the Obama Administration's economic strategy is a failure!

The current consensus is that the economy is not growing fast enough to produce jobs and there is little recovery in sight. Most are deeply concerned that the budget deficit will remain in excess of $1 trillion for years to come, putting the U.S. into a deeper fiscal crisis. What is most frustrating to are clients is that neither party has a realistic plan to start solving the problem. It seems doomed to only get worse.

Obama's Administration believed that with a temporary stimulus the economy would revert back to a state similar to pre-financial crisis and counted on the personal savings rates going back to the 3% range of disposable income or less and new housing starts recovering to the $1 million unit level. They believed this approach would give the needed economic shot in the short term to stabilize markets, which would be followed by increased personal spending which would restore growth.

Unfortunately the Administration didn't see the true macro economic drivers of the crisis. Consumers had hit the debt-wall from years of over-spending, while years of neglect on the US critical investment needs such as infrastructure, and energy had been neglected. The US has been losing its long-term competitiveness, hidden behind all the growth in consumer consumption that was creating jobs and a middle class in China.

So what happened was the savings rate has doubled to over 6% and of course housing starts barely creep along above the half-a-million units per year. The US economy needs much more than a temporary stimulus fix. It needs a structural change which is taking place by natural market forces. More savings equals more investment into the critical components the US needs to stay competitive.

All of American Finance Solutions' clients agree, that its going to get worse before it gets better. They all are ready to bite the bullet and have had a lot of practice over the past two years in surviving the storm. They want the needless spending stop and start having Washington make investments for the long-term, not for the political flavor of the day, even if it means serious sacrifices in the short-term, including another recession.

When Banks Say No To Small Business, American Finance Solutions and TransFirst Say Yes!

Even if you've been reading this blog for a month you know that small business owners are having crisis in accessing capital that has not been seen since the 1930s. I rarely use this blog in self promotion, but this week announced a very significant partnership that continues to fuel our growth.

American Finance Solutions, a leading provider of Merchant Cash Advances (MCA), and TransFirst, one of the nation’s top transaction processing solutions, are teaming up to provide small- and medium-sized business access to the
working capital they need. Through a joint referral relationship, TransFirst expands its product portfolio to include American Finance Solutions' Merchant Cash Advance product, helping clients' access capital quickly, despite tightening credit markets.

"TransFirst works with partners that demonstrate a track record of success," said Steve Rizzuto, President of Independent Sales Services for TransFirst. "We are happy to add American Finance Solutions to our suite of innovative, customer-based solutions. They have a unique funding product that provides our small business clients with capital in less than 48 hours. TransFirst will enable split funding for AFS’ product line of merchant cash advances and welcome their clients to our outstanding processing services”.

American Finance Solutions is proud to be partnered with a leader in the payment processing industry such as TransFirst. This was a win-win-win for TransFirst, their customers and AFS. We are happy to serve them, providing value-added benefits, and look forward to continued success in 2010 and beyond."

Credit Lines For Small Business Cut 25% Since Last Year!

Everywhere in the news we have been hearing that the signs are there for the end of the recession. Unfortunately the recession will not be ending anytime soon until the credit markets return to normalcy. At American Finance Solutions we supply credit to small- and medium-sized business and we follow the credit market closely and sadly report that credit is being denied at an accelerating pace. Large, well-capitalized companies have no problem finding credit. Small businesses, on the other hand, have never had a harder time getting a loan.

Since the onset of the credit crisis two years ago, available credit to small businesses has contracted by trillions of dollars. The same is true for consumers (who support most small businesses with their spending) and that phenomenon is reflected in dismal consumer spending trends. Equally worrisome are the trends in small-business credit, which has contracted at one of the fastest paces of any lending category. Small business loans are hard to find, and personal credit-card lines for small business owners (a critical funding source to small businesses) have been cut by 25% since last year.

Unfortunately for small businesses, credit-line cuts are only about half way through. Home equity loans, also historically a key funding source for start-up small businesses, are not a source of liquidity anymore because more than 32% of U.S. homes are worth less than their mortgages.

Why do small businesses matter so much? In the U.S., small businesses employ 50% of the country's workforce and contribute 38% of GDP. Without access to credit, small businesses can't grow, can't hire, and too often end up going out of business. What's more, small businesses are often the primary source of this country's innovation. Apple, Dell, McDonald's, Starbucks were all started as small businesses.

What's especially disturbing is how taxpayer dollars have supported "too big to fail" businesses yet left small businesses unassisted and at a significant disadvantage. Small businesses do not have the same access to government guarantees on their debt. After all, most of these small businesses don't issue public debt.

In reality, our government should be supporting the life blood of our economy by offering incentives to community banks to step up small-business loans on a greater scale. These smaller banks could not only bridge gaps created by the shut down in the securitization market but also gaps being created by a massive contraction in credit-card lines. Arguably credit would perform better with these types of loans as they would reintroduce and reinforce the most important rule in banking: "Know Your Customer."

Alternative lending sources such as merchant cash advances offered by AFS will continue to thrive as the trend continues. We get to "Know Our Customers" and offer solutions to access capital and grow your business.

Alternative Finance Companies Here To Stay

Image by Metafora AD Network via Flickr

Business week recent wrote an article on entrepreneurs accessing alternative finance companies. You can read the entire article here. It confirms what most of us already know, banks have virtually shut their doors to all types of financing for small business! Credit lines (both secured and unsecured), equipment financing and even personal credit cards to business owners are all being denied.

The articles highlights the fact that alternative lenders, such as traditional factors, reverse equipment leasing and merchant cash advance financing is becoming the mainstream for business owners out of necessity. All of the above and more expensive than traditional bank financing since they involve the financing company taking on more risk.

As for merchant cash advance, it seems that we have finally made it out of the infant-stage of our new product and are now entering the mainstream. For our agents selling the product, now is the time to expand into new business types that have not used the MCA before and target clients with very good credit who would not have considered the product before.

CIT Groups Pending Bankruptcy

CIT Group may be the largest financial player you never heard of. CIT has over one million customers, most of whom are small- and medium-sized businesses. Unfortunately with bankruptcy looming for the financial giant most of these companies will see their credit lines slashed or completely disappear.

If you're one of the above business owners, it's time to devise a backup plan. No matter what the end result for CIT, its current financial struggles signal that credit is going to get harder than ever to come by. When these business owners do come across credit it is going to be very expensive. It all comes down to the basic Economics 101 and the law of supply and demand. There's a very limited supply of credit and a swelling of demand. The swelling is continuing to grow at a very rapid pace.

This will affect the merchant cash advance industry as well. Agents and funding companies can expect a huge influx of demand and increased applications and conversions over the next few months. Many MCA companies may be increasing rates in an effort to limit their funding amounts as they may hit ceilings on their own access to capital.

The end result is definite opportunity in the industry of Merchant Cash Advance to gain a new client base and expand into other industries.