AFS Launches Risk-Based Pricing

In the Merchant Cash Advance industry the two major factors that determine pricing for clients is the expected collection time for a contract and the associated risk with the contract. As we have all seen bad debt is the main driver behind the cost of money (and also makes or breaks many of our competitors.) For 2011 AFS has just launched a true "Risk-Based" Pricing model to be more aggressive on pricing contracts for merchants. For agents that have not submitted a deal to AFS in the past three weeks, you will be quite surprised on the outcome of your next submission.

The new pricing calculator now looks at more than just expected payback period to price a deal. Many other factors are now weighed including, time in businesses, expected contract length, seasonality, industry and twenty-two other factors. In addition, the calculator also allows for our Account Executive to provide multiple scenarios pricing very quickly, making it easier to offer multiple contract scenarios across all types of variables (withholding percentages, cost, funding amount, etc.)

The result for our clients is that merchants that show greater credit worth will now receive preferential pricing. The pricing also takes into account our clients' payment track record on repeat contracts. The goal is to keep an AFS client satisfied for the long haul and loyal.

However, the largest improvement to our agents is the ability to modify their compensation stream to achieve better pricing without affecting the total amount earned on a deal. Our Account Executives can now offer pricing options moving a portion of the upfront commission to payback residual. This will be done only upon request of the Agent to be more competitive on pricing and is a great solution (instead of having to reduce commission to get a deal done.)

Bottom line is that AFS Agents are now able to customize pricing for contracts to close more deals and build a strong portfolio of clients. For more information or better yet to take advantage of this new pricing please do not hesitate to contact your Account Executive or Ray Felts, Agent Development Manager at 800-760-5516, ext 106.

Banks Finally Starting To Reach Out To Small Business

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)!

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.

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.

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.

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.

30 Second Summary Of 2010

With 2010 almost in the books, its time to look back in retrospective so we can all see how far we have come. The year started out with turmoil continuing for many merchants, merchant cash advance funders and sales organizations on the MCA. Those with strong foundations built in operations, customer service and experienced management continued with the re-trenching.

Most found ways to either, lower operational expenses, re-purpose marketing dollars while increasing its effectiveness or raise pricing by adding on value to the end clients to minimize customer attrition. Those that were most successful were able to combine all three and actually make growth in 2010.

On the merchant side of the equation, we continue to see that customers of our merchants keep pushing and demanding value for their hard earned dollars. Capital Access Network just released their Black Friday 2010 reports and one highlight is the fact that restaurants with an average ticket showed a growth of 4% versus 1% for those with average tickets in excess of $25. American Finance Solutions has definitely seen the same trends among our client base.

Restaurants tend to be an early trend indicator for most merchants. Since they provide vital commodity (you got to eat) and across the industry offer products at all different price and service levels. At AFS we expect the trend of higher volume and lower average tickets (or transactions) to continue across every industry.

On the merchant cash advance funding side we saw the same trends. Many funding companies shrank their operations to cut the fat. We also saw a complete change in marketing with most abandoning expensive trade shows and opting for a narrow targeted approach through various mediums. Lastly, most funders saw a dramatically lower average funding amount per contract which is to be expected with our clients seeing lower sales volumes.

Lastly the sales agents had the most turmoil in our space. UCC hunters are now just banging the phones with much less efficiency given the increased competition. Many funders have stopped filing UCCs all together to protect their client base. Many sales organizations also re-trenched in their operations keeping only the most successful sales representatives and rewarding them very well.

After looking back, 2011 looks like a great year for those who are well grounded and ready to capitalize on opportunity.