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!

Traditional Financing Gone For Small Businesses

If you own a small business and have been in the bank lately there are only two letters that you've heard. They are N and O! This recent article in Newsweek highlights the challenges that small- and medium-sized business are have in obtaining financing.

The example is a 46-year old plastic bagmanufacturing company that had solid relationship with his bank. With a company this established and marketing a core product one would think that they are a sure in for bank financing. Now imagine being a successful business that has been around for a couple of years.

Their are other options out there depending on your industry and product or service you sell. For companies that sell B-to-B a good route might be traditional factoring of their account receivables or spot factoring of just a few invoices. A manufacturer may be able to do an equipment lease back or certain piece of equipment or vehicles. Of course many service, wholesaler and retailers may be able to take advantage of the merchant cash advance.

For each of the above there are different fees and costs. All provide a low documentation, convenient alternative to bank financing. Of course the rate charged for each is higher than what you used to be able to get at your bank. Expect to pay two to four times the yield rate that the bank offers. So while access to capital is going to cost your business more than the past, its still out there for when you need it.