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!

American Finance Solutions Official Media Sponsor Of WSAA

American Finance Solutions is proud to announce that it is the Official Media Sponsor of the 2011 Western States Acquirers Association. This year's conference will be held at the San Francisco Hyatt Regency in Burlingame, California on September 21st and 22nd.

The two day event features the Field Guide for ISO's Seminar and tons of breakout session focusing on the future of the payments industry. Marketing with Social Media, Mobile Payments and International Markets will all be highlighted. In addition, there will be plenty of time to visit with vendors and sponsors during breakfast, lunch and cocktail sessions.

AFS will be using the venue to launch its new Agent Portal, enhanced Fast Cash funding program offering $20,000 in 48 hours for merchants without personal credit pulls and an industry first equipment-secured Merchant Cash Advance with low factor rates starting at 1.15.

Make sure you stop by and see us if attending.

Let The Second Selling Season Of 2011 Begin!

Now that the kids are back in school and Summer vacations are over, it time to gear up for the Merchant Cash Advances second selling season of the year! Historically the Spring and Fall have turned out to be the prime sales seasons and we are expecting the same for 2011.

More than ever, merchants have the upper hand over suppliers when they have cash. Many of our existing clientele are renewing to take advantage of opportunities. Many are receiving large discounts or other incentives by pre-ordering and paying in advance.

One of our retailers reported a savings of 40%. He pre-paid for this October and November deliveries and is receiving $20,000 of clothing. Given that his mark up is 100%, that means he'll generate $40,000 in sales for a total cost of $15,600 ($12,000 plus the $3,600 in factoring fees). Now that's a smart use of a Merchant Cash Advance!

Restaurants are reporting that they are getting similar concessions from their liquor distributors. Gift and novelty shops are reporting discounts of approximately 30% for pre-ordering and of course speciality toy and hobby stores are squeezing their suppliers for 30% to 50% discounts. If you're marketing and selling MCA, now is the perfect time to adjust your target market and message to capitalize on this selling season. Don't forget to focus on the right types of business and who their market demographics are as well. You want applications from merchants that have the highest chance of getting approved for funding.

At American Finance Solutions, we expect more record funding months in our busiest season. Both high- and low-end retailers should benefit the most in our current macro-economy; and be the most attractive to AFS and other funding companies. (Those with money will continue to spend at the upper-end, while the rest of us move down; and the middle retailers will really feel the squeeze this holiday season!)

Latest Experian Business Benchmark Report Confirms That We're Bouncing Along The Bottom

Last week Experian released its 2nd Quarter Business Benchmark Report. The report reveals nothing unexpected and confirms that our US business climate continues to bounce along the bottom of a recession recovery. American Finance Solutions and other MCA funders play close attention to these trends to make subtle adjustments to their pricing calculators for risk and expected pay back of contracts.

Overall most businesses became somewhat more delinquent on their debts and are stretching out their days-beyond-terms. As for relevancy to the Merchant Cash Advance was the discrepancy between business size. Large business, defined as those with over 1,000 employees, had a huge increase in delinquency. Obviously, these types of business are not MCA clients. Small- and medium-sized businesses either improved their delinquency or had a minimal decline.

The report also reports delinquency by business type. Merchant Cash Advance core business types also had minimal changes to delinquency ratings. Hospitality, retail & services all continue to show steady as she goes, with neither improvement or decline in financial health as sectors.

What does this all mean for our Merchant Cash Advance industry? The trends of increased demand will continue for the short- and medium-term. Risk to funding companies, such as American Finance Solutions, on a whole should see slight improvement. Expect smart industry players, (agents, resellers and funding companies) to aggressively capitalize on a great opportunity to build revenue and market share.

As for pricing, I expect to see little change as demand pushes up some and the continuation of low bad debt will allow funding companies to cut margins some to increase volume. The two should offset each other.

It continues to look like merchant cash advance will be a strong and viable industry to provide small- and medium-sized companies with working capital! As always, American Finance Solutions looks forward to funding all your contracts.

Not Just Surviving, But Thriving In Recession

Unfortunately what is bad for the overall economy ends up being good for the Merchant Cash Advance industry. When the economy starts shrinking, traditional lending sources start drying up quickly, and when available the cost goes up. That forces those that need capital to turn to alternative sources.

The political events over the past week coupled with the stock market realizing the reality of the American economy has us in store for our second dip in the waters of economic recession, in my opinion. With unemployment (true unemployment is definitely above 15% and if you want estimate under/unemployment some experts are quoting 20%+) showing no signs of recovery, government stimulus spending coming to end and definitely more foreclosures in residential real estate (and the shoe hasn't even begun to drop in commercial!); its hard to refute that the next 18 months will be tough.

The end result will be significant growth for alternative lenders with Merchant Cash Advance and its ancillary products thriving. The number one reason will be pure demand and lack of suppliers. Obviously the demand will be there just as it was in 2008 when the last recession started. However, I believe the suppliers will not come rushing in as they did previously. You need dump trucks full of cash to become a serious player in this market and if you think its tough raising money for your traditional business or hot Internet start up. Imagine going out to the capital markets and saying, "I need cash to finance working capital in the sub-prime, small-business market and oh yeah, most of my clients are sub-700 FICO with no assets."

Another reason is that MCA will thrive is that funding companies will be able to easily pass along their increased cost of capital to their clients. With a typical factor rate now being 1.32, its not that difficult for a client to swallow 1.35 at the same terms. Even if real interest rates double or triple, I expect the effects to be negligible.

The key will be the qualification and underwriting criteria that the funding companies follow. In 2008, the MCA landscape was like the Wild West with anyone who had a business getting funding. The ten major funders left, American Finance Solutions included, learned their lessons the hard way. Expect most to focus on SIC codes and business models that "make sense" in a recession. More on that in my next post.

How To Speed Up Your Funding And Avoid The Dreaded Killed Deal

As the world of Merchant Cash Advance continues to mature we are seeing that price for the product is becoming less of differentiator. Service and speed of funding contracts is quickly becoming the factor for funding companies. At American Finance Solutions we've taken significant steps by investing in systems and people to address this issue. Over the past six months we have improved this significantly by two business days with most contracts funding in under four days.

Even given all of your improvements, AFS does not control all the aspects of a deal. Both our clients and sales agents can greatly influence the speed of funding and ensuring that an approval doesn't get killed in the due diligence process. By following these two simple steps you'll greatly improve your success rate.

1. Don't Hide The Bad & The Ugly - So many times we see merchant and/or their sales agents trying to brush over some negative information about the business such as recent tax liens, being constantly two weeks late on rent or some other issue. With all the technology and tools that funding companies use such as site surveys, legal/public database aggregates, background checks, reverse phone look ups and even simple Google searches we find out about the issue eventually.

Our best sales agents (coincidentally the once with the highest compensation) present the Good, The Bad and even The Ugly on merchant's current situation. This allows us to properly structure and price a deal correctly upfront that doesn't put the client in a financial hardship, meets his or her needs, fits the funding companies risk appetite and yields enough margin to make sense for all parties. Often an inexperienced sales agent selling on price is also unaware of the Ugly. Top agents who are true finance consultants will educate their merchants to give them the whole story, that way they can present the entire situation in the best light to MCA funders to maximize approvals.

Nothing frustrates clients more than having to change terms or require payoffs of past due rent or just simple requests for tax lien payment plans at the 11th hour just prior to funding. Worse yet, when a company's due diligence staff discovers the undisclosed Bad or Ugly they start worrying about all aspects of the deal and client. The last thing the merchant or the sales agent wants to do is to turn a verification process into a Sherlock Holmes investigation adding days into the process and even resulting in the dreaded Denied stamp.

2. Have/Set Realistic Expectations - So often at AFS we receive contracts back and immediately give our Welcome Call to the merchant to confirm contract terms & payment method and inform them of the due diligence process. They are shocked that it is going to take three or four days to get their $50,000. It blows me away that intelligent business owners think that from a simple one-page application and a few bank statements that they faxed in a day ago will suffice for a company to wire them tens of thousands of dollars.

Unfortunately landlords are not always available and take a day or two to call or fax back. Setting up the collection method with a new credit card processor and ensuring that the withholding split is in place takes a couple of days usually as well (if there's a point of sale system that needs to be reprogrammed it could take a week or more).

More often than not its the weak sales agent that has promised funding the next day in order to get the deal that has created the issue. Sales agents have to take the 30 seconds to explain the process and set a realistic explanation that funding will be in three or four days and the repayment method must be in place (so download your terminals asap!) This way the client isn't blowing up the agents phone every hour, has a great experience and is happy to refer more clients since with a simple set of expectations he is delighted rather than frustrated. (Tip to sales agents especially - calling the funding company every hour to check on your deal doesn't speed things up, it actually delays it because people are using their time to talk to you rather than work on getting the deal funded).

By following the two simple steps above, both merchants and sales agents will see a dramatic increase in their funding success rate with minimal frustration.

In 2011 Banks Are Getting Tighter, Not Loser As Expected

The most recent report by the Wall Street Journal, reports that for the 1st Quarter of 2011 small business lending from banks and other institutions decreased by 8.6% for 2011 versus 2010! All the hoopla of and marketing pushes by big banks appear to be just smoke and mirrors yet again.

In fact when you drill down into the data the numbers for banks (small business' historic solution for working capital), the numbers are even worse. For business loans less than $1 million, banks reported a drop of 14% and other small lenders fell 3%.

Now if you're an established business with significant revenue (in excess of $25 million) big bank lending has actually increased. Sounds like the same old story, that banks do not want to lend the lifeblood of the American economy, Small Business, when they need capital to grow and expand their business. But as soon as a business established and cranking out cash flow they open up the coffers, but of course it has to be collateralized and with personal guarantees!!!

Its no surprise that American Finance Solutions, had a historic record June in terms of funding amount. We continue to see a steady increase in applications and funding amounts. Some of our recent fundings include a well-established retailer with an 800 FICO but no real estate and a three location auto repair facility that has been established for 12 years.

For those that sell and market the Merchant Cash Advance product, there has never been a better time to build a strong portfolio!

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)!

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.

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.

2011 Predictions For The Merchant Cash Advance Industry

2011 is right around the corner and its time to look ahead so one will be prepared for a successful year. On the Chinese calendar, the upcoming 12 months are known as the year of the Rabbit. The symbol aligns with the state the predictions for Merchant Cash Advance industry perfectly!

There are a couple of things that rabbits do well: multiply, play well together and enjoy the company of others. These three characteristics are also the same three predictions for the MCA-industry for the New Year.

1. Multiply

Demand for alternative financing will continue to grow for 2011 and AFS believes that the merchant cash advance will lead the way. In fact this growth will increase dramatically from because of both supply and demand of business financing.

The largest driver of growth will be the limited supply of financing to small- and medium-sized businesses. Traditional bank credit lines will remain extreme tight as commercial mortgages default rates increase. Only the very best credit clients will qualify for traditional lending and when they do qualify they better have assets to back it up. Equipment financing companies are also significantly tightening up their lending qualifications as well. The merchant cash advance is well poised to pick up the slack and fill the supply-side void.

On the demand-side, we will see a modest increase in demand for business financing. Those business who are surviving are now starting to take advantage of opportunity. The successful pizza franchisee is being asked by the franchisor to take over and turnaround other locations, landlords are asking their best tenants to open locations with huge concessions at other properties. Many of American Finance Solutions existing clients are buying competitors (or their assets) to grow by acquisition. All of these require working capital and the MCA is a great solutions for many.

A second part of multiplying is the MCA product mix. We will start to see more and more variations of the MCA based on term, cost and finally industry-specific products to fill very specific needs.

2. Plays Well With Others

On the marketing side of Merchant Cash Advance we are seeing the reseller/agent network morph. Traditional financial services sales organizations are quickly adding the MCA to their product line up out of necessity. As supply of business credit dries up, these sales organizations are scrambling to find new products to market and fill the needs of their clients. We will see the MCA being marketed together with other complimentary financing products, not just coupled with credit card processing.

This is resulting in a more consultative sale where a merchant can effectively evaluate the product and compare it to other financing options. Often when a clients first hears of the rates involved with merchant cash advances they are shocked. However, when you compare the rate to other products, the difference is considerably less and very competitive when they realize it is unsecured business financing. These resellers will be challenged to understand and effectively sell and deliver the credit card processing merchant services that has to be included as part of the sale.

3. Enjoys The Company Of Others

In 2011 you will see the merchant cash advance funding companies joining together in two ways. First, with large deals quickly on the rise and surpassing $500,000 the risk with one company is often unpalatable. Funding companies are smartly participating in these large deals to achieve risk mitigation. This cooperation is smart on the risk side for funding companies and for resellers and clients. As participation becomes more the norm in the industry and more comfortable for funding companies; larger deals will become more prevalent resulting in the MCA becoming a viable product for a new set of clients that have larger capital requirements. Resellers will benefit, however don't expect commissions to continue at the same straight percentages as these clients will push hard for lower rates.

Secondly, American Finance Solutions predicts some consolidation among funding companies. AFS and a few other companies have solid financing while others do not. The need for funding capital will create opportunities for growth through acquisition and mergers. In addition, the merchant cash advance industry has never experienced any consolidation, so the economies of scale that capitalize on operating efficiency have yet to be exploited.

As always, if you are interested in selling your funding company or its portfolio, American Finance Solutions is looking to buy. Overall expect the New Year to be more successful for all involved in the merchant cash advance industry!

Credit Card Usage Down, MCA Funders Worrying?

It was just reported by a major credit report agency that Americans had an 11% drop in credit card usage. Of the 70 million users the previous year, 8 million have dropped off the radar. At first glance Merchant Cash Advance funder might think they are in trouble with their expected payment stream quickly dwindling but these statistics require further investigation. For example, there were headlines over the past year about how much debt the U.S. consumer was "paying off" but when you dug into the numbers the reality was, the cause of this drawdown in debt at the aggregate level was almost entirely due to a huge swathe of people defaulting on debt.

More than 8 million consumers stopped using credit cards over the past year. About 62 million people now have an active card, compared with 70 million a year ago. The decline stems from a combination of consumer choices and bank actions. An analysis by credit reporting agency TransUnion found that use of general purpose credit cards bearing MasterCard or Visa logos, or issued by Discover or American Express, fell more than 11 percent in the third quarter, compared with the July to September period last year. The Chicago-based company found that consumers in the subprime category, or those with low credit ratings, were believed to be without cards mostly because they were shut down by banks after payments fell behind or balances were written off. "One can quite reasonably infer that's not voluntary," said Ezra Becker, vice president of research and consulting in TransUnion's financial services business unit. Banks have written off record amounts of credit card balances in recent years.

But a significant portion of the decrease in card usage reflects decisions by cardholders to stop using credit, Becker said. "They're simply either not purchasing as much or paying down balances." Many of these individuals may have shifted to using debit cards. In the past several years the use of debit cards has grown steadily and now surpasses credit card use in both the number of transactions and dollar volume. Interest rate increases by credit card companies and reduced credit lines have contributed to that trend.

The good news for funders like American Finance Solutions is that almost all credit and debit card transactions are used in capturing the expected payment stream from our clients. So in reality the economics of the merchant cash advance appear to be virtually unchanged. This is good news for the funding companies, agents representing the products and the merchants accessing the financing since there are no significant changes to the expected payback one should expect approvals, underwriting and access to capital to remain consistent.

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.

AFS Joins The North American Merchant Advance Association

American Finance Solutions is proud to announce that we joined the North American Merchant Advance Association (NAMAA) this month. NAMAA is a not-for-profit trade association representing the organizations in the US and Canada that offer working capital advance products based on credit, debit and other electronic payment-related revenue streams to small- and medium-sized businesses. The goal of NAMAA is too shape our Merchant Cash Advance industry by providing leadership, education and sharing of information.

With MCA being an alternative financing product for businesses, it is often seen by traditional lenders as a high-risk, expensive and questionable product. Reality is that the Merchant Cash Advance is a fairly priced, un-collateralized business financing that fits its niche in the marketplace. During the infancy of the product in the early-2000s, the product was and sometime continues to be sold incorrectly. The NAMAA recently set Best Practices Guidelines to ensure that all funding companies and agents represent and sell the product properly.

American Finance Solutions has always adhered to these Best Practices since our first day of operation over five years ago, since they are the proper way to do business. For those that do not know the Best Practices, they are six key elements:

1. Provide Clear Disclosure Of Fees

2. Provide Clear Disclosure Of Recourse

3. Be Sensitive To A Merchant's Cash Flow

4. Adhere To Proper Marketing Materials Disclosure

5. Monitor Resellers Of The MCA Product

6. Proper Payoff Of Outstanding Merchant Cash Advance Balances

In addition, NAMAA members all contribute to fraud prevention on both the client and agent side of the business to protect members from unscrupulous individuals. American Finance Solutions looks forward to contributing to the NAMMA organization and helping shape a strong MCA industry that continues to prosper in the future.

Forecast For Small Business Default Rates Dropping

The Stanford University Business School was announced their forecast of default rates on small business loans. Based on analysis of PayNet data the default ratio is expected to decline from 4.6% in 2010 to 3.9% in 2011.

Since 2006 the average rate of small business has averaged 6.9%. This means that small businesses in general are defaulting on their obligations less. Merchant Cash Advance funding companies are also see their default rates drop at approximately the same ratios. As compared ot 2008, the default ratio has dropped by 1/3 and looks likes the trend is continuing.

This drop has allowed MCA companies to do a couple of things:

1. Agressively price quality contracts, with a lower bad debt; funders can offer lower factor rates

2. Write deeper in their portfolio, again with the lower factor rate we can afford to take risks on some contracts

3. Offer contracts with longer expected repayment terms, as the we push out the timeframe risk increases

2011 is shaping up to be a record year for the entire industry. With falling bad debt, banks still siezed up and total lack of liquidity in most other alternative financing products, the MCA is becoming a viable alternative for almost all merchants.

If your marketing MCA their has never been a better time to build your book of business!

$30 Billion For Small Business Lending, Think Not!

Recently Congress passed legislation to create a new fund for $30 billion to assit 8,000 community banks in creating business loans. Specfically the bill, known as the Recovery Act Queue" will waive SBA loan fees, allow the SBA to guarantee larger loans and offer tap breaks for those businesses.

While this is a good step in the direction of opening up credit markets for small- and medium-sized businesses, it is just a band aid. Unfortunately, these businesses will still have to go through the traditional banking system to access the funds. That means qualifying under very stringent guidelines, providing full documentation and if approved accessing the funds in 90 days or more. The more critical issue is fixing the credit markets!

Unfortunately the $30 billion does not place restrictions on business size that can utilize the funds. Most bankers are much more favorable to lending to large, established businesses rather than mom-and-pop operations. I have to believe that the $30B will quickly be gobbled up by established businesses retiring pervious expensive debt and leave little for Main Street. The banks will continue to lend to only their best clients and forget it if you have a credit score below 750!

The fundemental issues are still present and continuing to grow. In the MCA space we continue to see record submissions and funding amounts month-after-month. If you are an agent offering Merchant Cash Advance or any other type of alternative business financing, there has never been a better time. The demand is there, the funding companies left are all solid proven players and the range of MCA products continues to expand making it easier to get clients funding.

Do Mortgage Defaults Effect MCA Qualification?

Almost daily we receive submissions for Merchant Cash Advances from business owners that have perfect credit other than a mortgage default/severe delinquency. Many times these owners are perfect with every other payment (car notes/leases, credit card cards, utilities, etc.) and still suffer from sub-600 FICO scores. This obviously makes them ineligible for any type of bank financing.

For a multitude of reasons these merchants are walking away from their homes. During our merchant interview we hear horror stories about how they have tried to negotiate with the bank to do a loan modification or some other workout. We'll this video shows you the real story on why the banks make more money when the home owner defaults. It also reinforces what we all know, that bailouts only help Wall Street who doesn't need them and never reaches Main Street!



Here at American Finance Solutions, we welcome these clients who have good credit except for the mortgage and have a steady business. We know that they are highly unlikely to walk away from the business that they have worked so hard to build. Often we ask for back up paperwork to show that they applied for the loan mod or negotiated a short sale. If they already walked away from the property and the foreclosure is complete then usually documentation is not required. These are good credit worthy clients caught in an unfortunate situation.

If the business owner is a low-500 FICO and struggling across all credit lines, then we have to take a good hard look at the complete picture on both the personal and business side to make a credit decision.

I recently polled our competitors and about half take the same position as AFS, while the other half adhere to strict guidelines. Some require no more than 60 days down on a mortgage while others are 120 days late.

So, do mortgage defaults effect a business owners ability to qualify for an MCA? The answer is, it depends on the situation and who you apply to.

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."