Accelerating Cash Advance

The latest issue of The Green Sheet has an updated article on the merchant cash advance industry entitled, Accelerating Cash Advance.

I think this is a very well written article with quotes from CEOs of such companies as yours truly from AmeriMerchant, American Microloan, Merchant Cash And Capital, North American Bancard and AdvanceMe.

The spirit of article is very similar in line to what many of my postings over the last few months have indicated, the days of merchant cash advance companies approving everything are over. There are some industries that may never qualify for a merchant cash advance again because simply the product doesn't work for it based on the payment flow of the industry / the ability for the customer to control the cash register.

The article also speaks to how agents / ISOs and resellers of this product should be concerned about who they are sending their deals to today. As soon as you hear a company can't fund, RUN! Better yet, don't even get to that place, a lesser, normal commission will be worth more in the long run then what seems like a too good to be true commission from a company that won't be around in the long term.

One positive aspect is that the merchant cash advance industry is coming together to establish best practices for selling the product as well as establishing risk tools to eliminate unscrupulous merchants.

Merchant Cash Advance Market Size

While the merchant cash advance industry is growing at an astounding pace, one question that keeps coming up is how saturated or not is the potential market? While there is no official study, estimates are that somewhere between 5% - 10% of the eligible marketplace has taken a merchant cash advance. I believe it's closer to the 5% range. What I do think is happening is that merchant cash advance salespeople, ISOs and agents are capturing the low hanging fruit, meaning that those merchants that have taken an advance before against their future credit card sales are one of the first to respond to a marketing campaign. The reason for this is they are more willing to listen to a salesperson as they are already familiar with the product. The challenge which takes patience is finding businesses that have never taken a merchant cash advance before, which makes up the other 90% - 95% of the potential market. The most successful merchant cash advance providers will be those that are able to tap into the other 90% - 95% of the market that have not yet taken a merchant cash advance.

Green Sheet Article - Sizing up Merchant Cash Advance

The recent issue of The Green Sheet has an article about the merchant cash advance industry, Sizing Up Merchant Cash Advance.

This article was written by First Annapolis Consulting, a consulting firm that specializes in consulting and investment bank services for the payments industry. Most of their assumptions were previously indicated in this blog including the size of the industry (First Annapolis' best educated guess is $500 million to $700 million in future receivables purchased). I believe it's closer to $1 billion at this point (as mentioned in my October 2007 posting).

They also indicate how there will be some shakeup in the merchant cash advance industry as I predicted in my 2008 Merchant Cash Advance Industry Predictions.

Credit Crunch And The Merchant Cash Advance Industry

Today's Wall Street Journal has an article entitled Credit Scare Spreads in U.S., Abroad that discusses how banks are making it even harder now for small and midsize businesses to obtain business loans.

This appears to be an exciting time for the merchant cash advance industry as it will potentially raise the credit criteria of the average applicant since borrowers who would normally goto a traditional lending source such as a bank for a business loan, may no longer be able to and will explore alternative financing solutions such as a merchant cash advance.

At AmeriMerchant, we have seen a huge increase in demand for our product over the past 60 - 90 days and I expect this trend to only increase. Merchant cash advance providers still need to make sure they are only providing working capital to those that truly qualify for it. I believe with the recent credit crunch, we will see more qualified applicants.

And for those that are keeping track, I predicted this back on my December 1st posting Merchant Cash Advance Industry Affected By The Subprime Mortgage Bust where I indicated:

The positive effect has been that we are also seeing some better quality applicants who in the past might have used traditional financing such as tapping into the equity in their home to help fund their business or a straight business loan from a bank. With the recent credit crunch and the decrease in real estate value in many areas of the country, many business owners are no longer able to use their home equity as a source of working capital for their business.

$97 Million Merchant Cash Advance Lead

I've been in the merchant cash advance business for a long time and this email I got today certainly made me realize that now I've seen it all. I thought this would add some good humor to the blog.

Now lets see who has the deepest pockets out there (or has lost their mind to even consider giving a merchant cash advance this size). If anyone knows of an alternative financing source for this transaction, let me know and I'll put you in touch with the salesperson.

-David

Sent: Monday, January 21, 2008 4:17 PM

David,

I have been working your cash advance program and came across something big. Probably too big, but I have a question and was wondering if you could help. There is an Indian gaming company that owns 5 casinos. They want to borrow $97M against their future cash flow (approx. $48M annual Net Income). Can you do anything with it or do you know where I can find someone who can?

Nation's Restaurant News Article About Merchant Cash Advances

Nation's Restaurant News, one of the leading trade publications for the foodservice industry, came out with a nice article on January 14, 2008 entitled Eschewing banks, some operators find fast, favorable financing with cash advance firms. This article is about the merchant cash advance product including the restaurant owner's perspective. You will need to register with www.nrn.com before being able to view it. They also have a print publication which the article may appear in.

Merchant Cash Advance Rumor

There is a rumor that has been floating around the merchant cash advance industry for the last week or so (I've heard it now from three different sources) that a large merchant cash advance company is about to acquire a New York based merchant cash advance provider. I guess we'll know sooner than later if this rumor is true, my bet is it's not. If it is, I guess prediction #4 - Mergers & Acquisitons in my posting 2008 Merchant Cash Advance Industry Predictions would come true (not bad on my part, considering I just posted it on December 28, 2007).