Saturday, March 29, 2008

Merchant Cash Advance Agent Shakeout

I am seeing a new trend in the merchant cash advance marketplace, namely merchant cash advance ISOs, agents, resellers, etc. closing their doors. This is no surprise to me as we saw a huge influx of subprime mortgage brokers entering our space. I estimate there were upwards of 100 phone rooms of converted subprime mortgage brokers trying to sell the merchant cash advance product thinking it was a way to make a quick buck. Those that took the strategy that selling a merchant funding will take time and learned from the lessons of the subprime mortgage meltdown are those that are still standing and potentially will be successful. There is another train of thought that is inevitable to fail - those that thought they can sell business cash advances with minimal capital expenditure, meaning hiring unqualified salespeople using inexpensive marketing techniques such as voice broadcasting (with these providers giving the same data to 100s of phone rooms) to dial hundreds of thousands of businessses an hour with a prerecorded message. (Merchants around the country are getting 3 - 5 prerecorded calls a day). The challenge is the quality of anyone that is going to press '2' on their phone for money tends to be "lower hanging fruit" and lower quality deals. With the recent credit crunch and many merchant cash advance funding companies tightening up, some merchant cash advance agents were seeing approval rates as low as 15%-20%. There is no way they can survive and stay in business with that kind of approval rate. You did see some undisciplined merchant cash advance providers willing to get aggressive with many of these phone rooms about 3 - 6 months ago, but that has now gone away as these providers have learned their lesson with high default rates from these low quality deals. Offering a business cash advance product as your main product as I've said over and over again takes time, anyone looking to make a quick buck, they are in the wrong industry. Those that are well capitalized and run first class, professional sales organizations rather than a "boiler room" will be here for the long run.

Monday, March 17, 2008

Merchant Cash Advance Market Size - Part 2

There have been many debates as of late on what is the potential market size of the merchant cash advance industry. One item people have been debating is the saturation of the marketplace with the amount of new agents/resellers/ISOs and former mortgage brokers that are now reselling this product (There has been a decrease of new funding companies entering this space, especially those with any sizeable presence). I estimate the market size at a minimum is now $850 million annually in merchant cash advances that will be funded. Let's assume 60% of that number is first time deals which brings it down to $510 million annually, which breaks down to $42,500,000 month in new deals funded. (I actually think the number is probably closer to $50 mil a month). I like to look at it as the average funding size is around $22,000 industry wide, which amounts to a little under 2,300 merchants a month taking a merchant cash advance for the first time. That means on average there are 46 merchants per state per month taking a merchant cash advance. (I understand some states are larger / more populated than others). But, no matter what argument you want to make, I don't think we've hit the tip of the iceberg with this product as there is no way only 46 businesses per state per month need access to non-traditional working capital for their business. I believe that number can be increased at least 10 fold making this upwards of a ten billion dollar industry. The ten billion dollar question is how do you reach these merchants cost effectively?

Thursday, March 13, 2008

Merchant Cash Advance Rumor

I've heard now from multiple sources that one of the largest and oldest merchant cash advance providers is having some bad debt problems as a result of not having any discipline and funding deals that never should have been funded.

Sunday, March 9, 2008

Merchant Cash Advance Blog #1 On Google

Someone just sent me an email that the Merchant Cash Advance Blog is the #1 site on Google when you search on 'merchant cash advance.' With that said, Google reindexes itself so often and by adding this post may change the position. So, in addition to the Merchant Cash Advance Blog being mentioned by various media outlets including The New York Times, we are also featured as the #1 most relevant website by Google (at least for the time being) on the search term, "merchant cash advance."

Saturday, March 1, 2008

AdvanceMe Takes A $565,000 Hit

The Atlanta Journal-Constitution is reporting that merchant cash advance provider AdvanceMe has taken a $565,000 hit from an Atlanta Restaurant Group.

This is a perfect example how many times sales agents / ISOs and even merchant cash advance providers believe before a deal gets funded that it's a "good deal" because it's a large established restaurant group. Unfortunately the bigger they are, the harder they fall.