It is interesting to see during this recent business credit crunch that the average credit profile for a merchant cash advance applicant is on the rise. We have seen a plethora of FICO scores in the 700s and even 800s which typically first seek traditional bank loans and credit lines before seeking alternative funding products such as a merchant cash advance. As I mentioned in my previous post, Merchant Cash Advance And The Business Credit Crunch, that the current conditions of the credit environment is an opportunity to introduce businesses to the merchant cash advance product that historically may have sought other options.
As I also pointed out previously, these better credit applicants will be less receptive to "cheap marketing" techniques such as voice broadcasting but require a more consultative approach about this product. There is an opportunity here that once the better credit score applicants are exposed to this product that they can use it in conjunction with traditional bank loan products once the credit markets eventually open up should the traditional product not be able to meet 100% of their needs. For example, a bank may only be willing to eventually give a business a $100,000 line of credit when they need $150,000 and this is where they can mix it with an additional $50,000 through a merchant cash advance. Time will tell, but I believe the average FICO score of the merchant cash advance customer will increase and remain higher once the credit markets / banks open up again to small businesses.
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What industry segments or types of small businesses do you see opening up to MCAs as the traditional funding options dry up?
You are right in the shift of the client profile for this product, undoubtedly due to the lack of liquidity in traditional credit markets. Also, I agree with your notion that those with a higher credit score must be marketed to differently. One cannot "trick" them into signing up for the advance. But if they truly understand the product and and are in need of the funds, then it is a very useful form of financing, particularly when blended - as you suggest - with others.
alot of small community banks are opening up nationwide that did not get into the subprime game, and, have liquidity to fund main street still. I will be very curious to see what penetration the cash advance industry has on main street merchants with 700+ fico scores and time in business- unless they bring rates way down, i still think small banks will be main artery for these businesses in 2009
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