Goodbye 2009, Hello 2010!

Many are happy to say good bye to 2009, including many of our competitors in the merchant cash advance space which did not live to see 2010! It was definitely a year that started off slow and then really finished with a bang.

We started with the hang over of 2008, that saw many business owners struggling to generate revenue and fighting to stay alive. For many financing companies (including those in the merchant cash advance space) this drastically increased their bad debt. Reports on the street are that some saw bad debt levels exceed 20%! Obviously with those kinds of defaults one cannot survive.

Often during 2008 and into early 2009, we at American Finance Solutions would hear from our sales partners, "Company X was offering a client $50,000, can't you match the deal?" Luckily AFS had tightened up its guidelines in early-08, and our response was, "We can match it, if you don't want us to be around to pay you residuals!"

Slowly things started to stabilize and the shakeout continued in the MCA-business on both the funding side and the agent side. As funding companies tightened up across the board, making better decisions for themselves and the industry, the sales process became more challenging. Agents actually had to build re pore with clients, thoroughly explain the product and the corresponding method of repayment. This caused an even greater shakeout for the sales channel.

We saw a mass departure of the previous mortgage brokers who were looking for more easy money. Call center boiler rooms found that they couldn't generate enough revenue to keep their dialer going. Then end result has left us with a higher caliber and ethical sales channel across the board.

Around July, business owners realized that the worst was over and now its time to investing in their businesses. We saw gradual increase in demand for working capital. However the source for capital is nearly non-existent except for those with perfect credit and have been in business for five-plus years operating in an acceptable industry. This left a huge void that the remaining funding companies are trying to fill.

The last quarter of 2009 saw all time funding levels for AFS with December 2009 setting a funding record. With no end in sight of the credit crunch, we expect the demand and usage of the merchant cash advance product to proliferate. The best news is that in our industries relatively short-time period there has never been a more qualified/experienced sales force.

For 2010, AFS expects to see consumer confidence slowly increase, most likely increase at a painfully slow rate. Business owners recognize that they've made it through the worst and have made the necessary adjustments to decrease expenses and increase revenue. They in turn will slowly continue grow and seek capital to achieve this growth. Keep in mind this will not be a smooth road, but a rather bumpy one. As for the funding companies, expect a little more shakeout with some that are still struggling with portfolios of contract that show the errors in guidelines and underwriting past. I expect that we will see some consolidation in the industry to take advantage of scale of operation. However, its a still a relatively young industry with opportunity for both the large and small funding companies out there.

To all our blog readers, we wish you a prosperous 2010!

Alternative Finance Companies Here To Stay

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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.

SBA's New Floor Plan Program

The Small Business Administration recently announced a new Dealer Floor Plan program to assist car, motorcycle, boat and motor home dealerships secure financing for inventory. This should help many of our clients in this business, but you have to act fast as funds may run out.

Details are as follows:

Dealer Floor Plan (DFP) Financing Pilot Program
Beginning July 1, 2009, the SBA will introduce the Dealer Floor Plan (DFP) Financing. This program offers government guaranteed loans to finance inventory for eligible auto, RV, boat (including boat trailer), motorcycle, manufactured home and other dealerships under a new pilot program that runs through September of 2010. When each piece of collateral is sold by the dealer, the loan advance against that piece of collateral is repaid and the dealer borrows against the line of credit to add new inventory. Here are some of the highlights:

* Size of the loan is $500,000 (minimum) up to $2,000,000 (maximum)
* Borrowers will receive a fee reduction as outlined in the recent changes to the standard 7(a) loan programs
* The maximum guarantee is 75% as opposed to the 90% in the standard program
* The maximum term for the DFP loan will be five years
* Loans will only be made for inventory that can be titled

For complete details visit http://www.sba.gov/floorplanfinancing/index.html

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.