2008 Merchant Cash Advance Predictions - 1/2 Way Follow Up

In December 2007, I wrote a post entitled 2008 Merchant Cash Advance Industry Predictions and being that we are now just halfway through 2008, I wanted to follow up on this previous posting.

It looks like it's only 1/2 way through the year and I went 3 for 4 on my merchant cash advance industry predictions with 6 months to go for the fourth one to come true.

Here is a recap:

1) Underwriting will tighten up / approval rates will go down - this one I definitely hit on the head. Between a combination of a down economy, merchant cash advance providers working together to prevent fraud and many merchant cash advance providers that have either lost or in jeopardy of losing their credit lines, it's common knowledge that while merchant cash advance submissions are way up as a whole, the industry approval % is down double digits %s. This low approval rate has actually driven many large, high overhead MCA brokers to either lay off employees or completely shut down because some of the "junk paper" that was approved in 2007, simply no MCA provider will accept now.

2) Sales Agent Commissions will stabilize and/or decrease - in 2007 we saw some companies paying extravagant sales agent commissions that simply didn't make sense. One would think they were trying to buy marketshare. I would imagine after they reviewed their financials / profitability, they realized they couldn't make money paying out the type of commissions they were, hence the marketplace has adjusted accordingly. Some merchant cash advance providers / merchant cash advance agents have actually raised their cost to the customer to maintain some of these commissions.

3) Self Regulation - In December 2007, I had indicated that:

"The industry has grown to large and has too many providers to not have best practices / industry standards in place. In 2008, I believe you will see a group of the key merchant cash industry players come together to announce a set of best practices for not only the merchant, but practices to protect the merchant cash advance providers as well."

In April 2008, a merchant cash advance industry trade association called the The North American Merchant Advance Association was announced to promote best practices as well as allow the leading merchant cash advance providers to work together to introduce various risk tools to combat merchant fraud.

4) Mergers & Acquisitions - In 2008 I believe we will see the first major merger and/or aquisiton in the merchant cash advance industry.

While we haven't seen any significant US merchant cash advance provider merge with or acquire another US based provider, I still think we have some time to go. There is a huge upside in the merchant cash advance industry for private equity firms looking to enter this space. We did see a private equity firm make an investment in one leading merchant cash advance provider so far this year and I expect there will be some other deals done this year as well.

Cover Story On AdvanceMe Merchant Cash Advance Patent Appeal

The cover story of the May 23rd edition of ISO & Agent Weekly titled, "Court Says AdvanceMe Has No Cash-Advance Patent" was an interesting article from all perspectives of this landmark ruling for the merchant cash advance industry.

In addition, in this issue, they feature a story called "Association Formed For Cash Advances" which talks about the newly formed North American Merchant Advance Association which has been receiving praise throughout the industry.

Merchant Pleads Guilty To Merchant Cash Advance Fraud

A Virginia merchant committed fraud on several merchant cash advance providers and is facing up to 20 years in prison, $1 million in fines and had to surrender his house, car and motorcycles. The story can be found here.

This merchant fraudulently took a business cash advance from several MCA providers in his customer's names. One of the missions of the recently announced North American Merchant Advance Association is to prevent fraud like this from occurring.

Merchant Cash Advance Association Mentioned In American Banker

An article about the North American Merchant Advance Association was recently written in American Banker (You will need a subscription to American Banker to view the article). In addition to The Green Sheet story, this is the second article about the merchant cash advance industry association specifically about how the industry has come together to create merchant cash advance underwriting / risk tools as well as establish best practices. This association is already starting to get recognition in all the leading industry publications.

The article features some nice quotes from NAMAA's President, Jeremy Brown of Rapid Advance. The North American Merchant Advance Association is currently in discussions with some other leading merchant cash advance providers to join and those announcements will be made shortly. I encourage all merchant cash advance providers to join this group.

Merchant Cash Advance Industry Comes Together

It was just announced today that the leading companies of the merchant cash advance industry have come together to form an industry trade association called The North American Merchant Advance Association.

This trade association will allow merchant cash advance providers to share industry education and professional development, ethical standards and best practices guidelines, the development of industry relevant products and services, and the engagement in regulatory and legislative advocacy.

An important focus of NAMAA is the creation and maintenance of a database of merchants that have engaged in unethical or fraudulent practices in securing past merchant cash advances.

I believe this association (Editor's Note: AmeriMerchant is a founding member of the North American Merchant Advance Association) will benefit the merchant cash advance providers, sales agents / representatives as well as merchants by establishing self regulation and best practice guidelines.

Any merchant looking for a merchant cash advance, I would strongly recommend working with a provider that is a member of the North American Merchant Advance Association.

Any merchant cash advance providers interested in joining, can contact me at dg@amerimerchant.com.