Loans
Are You Ready to Ride The Merchant Cash Advance Wave?
February 18, 2012Less than a year after we acknowledged the stunning absence of Merchant Cash Advance financing from the mainstream media, suddenly it’s the only thing being talked about. It took a few years but journalists are finally learning to complete the phrase of banks aren’t lending with, fortunately there are other options. The term Merchant Cash Advance is being thrown around so much that financial institutions that offer different funding programs entirely such as American Express are trying to attach their names to it. They are now trying to rebrand their product as Express Merchant Financing. This isn’t to be confused with a Dallas, TX based company called Express Working Capital which offers Merchant Cash Advances. You can understand why there is so much confusion. Merchant Cash Flow Loans too, which are micro loans based on gross sales are often identified as Merchant Cash Advances even though there is little common ground.
But let’s not fuss over small details because it’s not just the funding companies that are talking about it now, it’s the media.
No matter how well your website is designed or how good your sales people are, it’s important to recognize that small business owners think like normal consumers. According to a 2007 Nielsen Survey, 63% of people’s trust in a company forms from newspaper sources and 56% from television sources. Even though this type of financing has been around since the 1990s, the lack of news coverage has held the industry back. Despite the advancement of social networking and internet background searches, the majority of Americans still have that If it’s on TV, it must be true mentality. Why else would political candidates still be spending billions of dollars on TV commercials to get their message across?
The broad use of Merchant Cash Advance terminology, the recent recognition by the mainstream media, and the march of average Americans into the reseller market is an omen. A wave is coming. Whether some deem the current industry’s size to be $600 million a year or $1 billion is irrelevant. Merchant Cash Advance and similar financing programs have the potential to be a $10 billion market annually, especially since the major banks are retreating from SBA loans.
We suspect that in 2012, particularly the latter half of it will be explosive unlike the entire industry has seen before. Too many small businesses have been waiting on the sidelines since 2008. If the trend of rising employment is correct and a real recovery is underway, then we’ve got all the ingredients for a perfect storm. Confident Business Owners + Fast, Easy Access to Capital = American Recovery.
Call these business loan alternatives whatever you want: Merchant Cash Advances, Merchant Cash Flow Loans, Express Merchant Financing, etc. Just make sure you have a surfboard. A giant wave is coming.
– deBanked
https://debanked.com
The Small Business Lending Climate is Bad, But it’s Not a Disaster
January 27, 2012
We’re proponents of the Merchant Cash Advance (MCA) financial product, but we also believe in objectivity. Over the last several years, MCA providers have collectively rallied the masses by branding themselves as a source of business financing in an economy where financing is scarce.
Many people consider the collapse of Lehman Brothers on September 15, 2008 to be the official start of the latest recession. Some will argue that we’re still in that recession. We would probably agree with that. Either way, there hasn’t been much improvement in the financial markets.
Yesterday, on Sean Hannity’s radio show, guest speaker Donald Trump, said “banks aren’t lending.” That’s verbatim and it says a lot, considering that yesterday was January 26th, 2012, a full three years after Lehman’s demise.
A friend of ours that does commercial banking in Philadelphia reiterated the same thing to us a few months ago and even went so far to reveal that restaurants and retail establishments are on their lending blacklist. These revelations paint a grim picture and it’s fortunate that the MCA industry has risen to the challenge to support small business owners.
But there is light at the end of the lending world’s black hole. This morning we had a meeting with a big bank in New York City and of course we asked the question, “Are you lending to small businesses?” They responded, “yes”, and we expected them to follow it with a “but.” Except they didn’t. In fact, they said that small business lending was their biggest market right now.
Intrigued, we demanded to know more. Approximately 50% of applications are being approved and the criteria is as follows:
- Minimum two years in business
- Minimum personal FICO score of 680
- Minimum $250,000 in annual sales
- Must have consistent pattern of sales
- No history of overdrafts or NSFs
- Must prove history of keeping substantial cash reserves in the business account
- Must be current with all vendors and business property landlord
- Collateral may be required
- Maximum approval amount is 20% of annual gross sales
This checklist is challenging. That’s why leveraging your future credit and debit card sales to obtain a large chunk of capital upfront is not only the preferred method of financing for businesses with bad credit, but also for those that are making a serious investment in themselves.
Nonetheless, if a bank IS lending, we’ll be the first ones to admit it. MCAs offer a lot of powerful benefits, but if all banks start lending again one day in the future, quoting Donald Trump might not have the same impact it once did. Fortunately, there are twenty other reasons why MCA is a solid solution, and what banks are doing or aren’t doing is completely irrelevant.
– deBanked
https://debanked.com
Note:
If you are a small business located in the New York City area that is interested in a loan as described above, we would be happy to personally refer you to that bank.
SBA Lending Statistics for Major Programs (as of 9/23/2011)
September 29, 2011This report provides statistics on Year to Date (YTD) SBA Business Loan Approval Activity comparisons for Fiscal Years 2009, 2010, and 2011 for the period ending 09/23/2011.
Funding Floodgates Reopen
September 20, 2011If you’re a business owner, it’s time to get ’em while they’re ~HOT! Small business funding is BACK and more available than they’ve been in years. And guess what? Because we’re just a news site, we’ve got no reason to douse you with a cheesy sales pitch. There’s a lot of money out there right now and that’s the truth.
Merchant Cash Advance (MCA) continues to dominate the alternative financing market but a few new options are changing the landscape. You might call them ‘alternatives to the alternatives’, deals that are based on MCA but have all the bells and whistles of a loan; Fixed time frame, a payment schedule, and even personal guarantees! The underwriting criteria generally requires a set of recent healthy bank statements and semi decent credit credit (yes, your credit still matters) to qualify. Beyond that, it’s up to the individual lender to present their respective checklist of closing documentation. This usually includes some combination of a business property lease, applicant ID card, business permit, and a recent tax return. That’s it. Oh, and the wait time? Expect a week long process if you’re quick on the draw with paperwork.
Two years ago, there wasn’t much variety in the MCA space. Business owners could shop all they wanted but the underwriting and cost structures were essentially identical everywhere. Now there are factor rates that range from from 1.20 to 1.65. It’s more merit based than it used to be. The higher credit rating, stronger cash flow businesses can earn something better than the one-size-fits-all 1.35 factor rate of yesterday. On the same token, the complete credit averse can grab a shot at financing too, but at a steep price.
But there’s more to it than just cost, there’s also the setup:
Don’t want to switch your merchant account?
Stay where you are: There’s a significant chance your merchant processor already has a contract with the MCA provider you’ve chosen. Often times your sales representative may encourage you to open a new merchant account for the lower discount fees and to have a higher degree of control if problems arise. Ultimately, a new merchant account is not essential if you want a MCA.
Leverage your strong cash flow history: If you’ve managed to keep a large positive balance in your bank account for the last few months, your MCA provider could simply extract the agreed percentage from there, rather than directly through the merchant account.
Lock it up: A Lockbox provides the MCA provider with peace of mind by obtaining their payments without the risk of Non-Sufficient Funds from the debit method but also allows you to keep your merchant account. It’s frequently used as a compromise for businesses that are legally prevented from changing their merchant account(i.e. franchisees), but are too cash flow weak to qualify for direct debit payments.
But the buck doesn’t stop at the many ways you can do MCA. You’ve got options!
Merchant Loan: An actual loan based on your credit card sales history. A percentage may still be withheld from each card sale but a periodic or an end-of-term lump sum payment will be applied as needed to ensure the loan is completed within the time frame allotted.
E-Bay/Amazon Loan: Get a loan based on your sales history on Ebay.com or Amazon.com. The largest lender of this type is Kabbage.
Cash flow loans: We described these in the 2nd paragraph. Expect cost ratios from 1.12 to 1.55 and term lengths between 4 and 24 months.
How can you find the floodgates?
You can refer to the directory of direct MCA providers but can check out alternative lenders such On Deck Capital, ForwardLine, Kabbage, and Sure Payment Solutions if you want to diversify your options.
Kennesaw based funding provider, AdvanceMe expects to fund $1 Billion in the next two years. That’s nearly as much as the entire MCA industry did in the last two years combined.
2009 was a year full of “I should’ves” as in “I should’ve obtained financing before the financial crisis.” Cash is finally available to small businesses again and although it is more expensive than it used to be at the local bank, there may never be a time where the process is this quick, approval is this easy, or where your credit score is weighted this lightly. We’re not the salesman here, just the messenger. If there was any project you were remotely considering, now is the time to make a move… Don’t wait until the funding levees have been restored.
– deBanked
https://debanked.com
A Line of Credit and a Term Loan are Different Things
August 24, 2011Posted on July 27, 2011 at 12:22 AM
According to Gary Honig on Lendio.com, business owners sometimes ask for one type of financing but describe another. Get the facts and make sure you get what you need:
A line of credit (LOC) is usually considered a short-term loan. The payments are interest-only, based on the outstanding funds in use.
A term loan is a fixed, funding transaction. It is a one-time loan based on cash flow of the business plus certain collateral pledged against the loan.
When Average Credit is Better Than Excellent Credit: Data Points
August 23, 2011
Back in the wild days of Merchant Cash Advance(MCA), credit score was not only unimportant to the underwriting process, but irrelevant altogether. Business owners with FICO scores reaching down into the 300’s were obtaining 150% of their monthly average processing volume without question. That era came to an end and with good reason. Defaults and losses soared and some funding providers went under. If ignoring credit had continued, it may have lead to the industry’s demise.
In some respects, MCA providers overcompensated by making credit score the only factor, rather than simply incorporating it into the complete underwriting analysis. “FICO Under 500? Declined”, “Less than 550? No thanks!” “Under 600, Don’t bother”. This became the status quo during the conservative years of MCA. And yet business owners with credit scores as high as 800 were ending up in default. After much head scratching, some underwriters began digging a bit deeper. A healthy community burns out all at once in February, an entire industry underperforms, historical cash flow activity predicts survival rate, multiple partner businesses do better than sole proprietorships… While these were just an example of conclusions that could be reached, they’re all potentially part of an underwriting system, a system built on data points. We found a great example on an old personal blog of Jeff Mitelman, the CEO of Canadian based funding source, Advanceit. To quote Jeff,
“Here’s a practical application of using data points:
Merchant A has a restaurant in PEI, below average credit, a maxed out credit card & has applied for a $25,000 advance in June.
Merchant B has a restaurant in Southern Ontario, excellent credit & has applied for $50,000 in January.
With this information alone, B is clearly the better decision.
Now consider this new insight into the transactional history of accounts with similar characteristics that only a knowledge base can provide Advanceit has funded 50 restaurants in PEI, 47 of which have repaid without issue. The two of the 3 that didn’t repay stopped transacting in January. The historical credit card sales of restaurants in PEI peek in July & hit their lowest point in December.
Advanceit has funded 25 restaurants in Southern Ontario, 18 of which have gone to collections, 10 of which had write offs below the funded amount. Of the 10 losses, 8 of them occurred in March. The historical credit card sales of restaurants in Southern Ontario peek in December & hit their lowest point in February.
When evaluating the same two merchants through this lens, A is a no brainer & B is a recipe for disaster.“
A lot of the veteran MCA providers already implement a type of data points system, whether it be an objective scoring model or something more subjective. With the surge of many small ISOs putting their skin in the game and funding their own accounts, this advice should be not overlooked. Without data points, you’re shooting in the dark. Do not forget that your data points need substance either. If the only account funded in the State of Wyoming defaults, that should not be sufficient to cast off all businesses in Wyoming.
Credit is not the only factor, nor is it a solid predictor of the future. It’s a solitary piece of the Merchant Cash Advance puzzle. Don’t believe us? Take it from Jeff, it’s a game of “Learning by Losing.” Do your best.
– The Merchant Cash Advance Resource
http://www.merchantcashadvanceresource.com
Image copyrighted by 123RF
No New SBA Loans Being Accepted. Don’t Understand? We’ll Draw You a Picture
August 23, 2011
On September 27, 2010, the Small Business Administration(SBA) temporarily sweetened the deal on the popular 7(a) loans. As part of the Small Business Jobs Act, government backed default guaranties rose to 90% and many of the major fees were waived.
By late December, the funds for this program had been fully allocated and exhausted. But the announcement was poorly communicated, resulting in thousands of unsuspecting bankers and applicants left stranded and confused. To deal with the drama, the SBA set up queues, where applicants were either placed on standby to take the place of a cancelled Jobs Act loan or to be transitioned into the regular 7(a) loan without the deal sweeteners.
But leave it to the SBA to underestimate the intelligence of their clients. Worried that bankers and business owners might not understand the concept of closing one program and offering them another, they drew a picture.
Actual image being used on SBA.gov to explain the status of Jobs Act loans
In case the phrase “No New Loans Being Accepted” is obscure and cryptic, we can decipher the message using the Daily Transition Phase Alert meter. It’s a state of the art, super genius meter, that was handcrafted by NASA scientists, and topped off with the modern pizazz of a traffic light. Green is GOOD. Red is BAD. Big dollar sign GOOD. Small dollar sign BAD. If the meter is yellow, speed up and try to beat the light but make sure there are no cops behind you first.
Bankers should start using this system en masse. Instead of an outright decline, they can simply inform applicants that their lending ability is in Phase Red. Persistent businesess can take their chances in the underwriting process and battle it out using the Daily Transition Phase Alert meter 2.0. Left foot on $. Right hand on. But watch out for blue because blue is very bad! Blue automatically allows the bank to raise your business checking account fees and increase your credit card processing rates.
The Amazing Daily Transition Phase Alert Meter 2.0!
While your bank is busy playing games with you (they’re not just mind games anymore!), alternative financial firms such as Merchant Cash Advance providers are busy funding applicants in less than 7 days on average. The process is easy, only minimal paperwork is required, it’s credit score flexible, and every business is doing it these days. Want to find out the status of your Merchant Cash Advance application? We’ll hand draw you a picture:
Choose your funding source wisely…
– The Merchant Cash Advance Resource
