Saturday, July 17, 2010

Merchant Cash Advance Industry Update

I've received feedback from many people inside and outside of the merchant cash advance industry asking when I think the merchant cash advance industry will continue to expand again. There are obvious signs that there aren't enough good deals out there when many providers are marketing "they specialize in deals that no one else will take."

I think while we keep reading that "banks aren't lending to small businesses", I don't think that is the whole picture, I think that an important aspect that people are overlooking is "do business owners want to borrow right now?" Whether it's a traditional business loan or an alternative financing solution such as a merchant cash advance or factoring, businesses don't appear to be wanting to take on as much obligations as they have in the past.

Until the macroeconomics change where unemployment goes down and consumer spending goes up - why would the average business owner in July need money to buy more inventory when their current inventory isn't selling? Why would the average business owner open another location in this environment (compared to the % of owners that did this say 4 years ago)?

Until the macroeconomics change, I don't think the demand level for business owners to take on additional obligations, including alternative financing products such as a merchant cash advance, will increase substantially compared to previous years.

I think this will also put pressure on some merchant cash advance providers, especially ones that don't have substantial capital to ride out this storm, to start funding deals they shouldn't be funding, etc. which leads to a bigger disaster down the road as many merchant cash advance providers (most who aren't still in business) learned a couple of years ago.

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