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.

Merchant Cash Advance Featured In American Express Business Card Holder Article

American Express publishes a series of articles for its business card holders. One recent article entitled, Alternative financing: Where to turn when the bank says ‘No’ by Elizabeth Wasserman lists the merchant cash advance as alternative financing solution when the banks say "no" to a business.

The article quotes AmeriMerchant and myself as follows:

A handful of independent finance companies will give merchants a lump sum upfront in exchange for a share of their future credit-card sales. Different than a loan or lease arrangement, a merchant cash advance is based on a business’ monthly credit-card sales history, says David Goldin, CEO of AmeriMerchant and a founding member of the North American Merchant Advance Association. "It's a buy-and-sell transaction," Goldin says. "We buy $10,000 in future credit card sales today for $8,000 and we get a specified percentage of future sales from customers."

Editor's Note: David Goldin is the President & CEO of AmeriMerchant and the author of the merchant cash advance blog.

North American Merchant Advance Association Announces Merchant Cash Advance Best Practices

While merchant cash advances have been around for quite some time, like many industries it has seen its share of scrupulous and unscrupulos providers. The North American Merchant Advance Association (NAMAA) recently released it's recommended Best Practices for the Merchant Cash Advance Industry.

As a founding member of NAMAA, I commend our co-members which make up the majority of the players in the merchant cash advance industry for coming together to ensure the merchant cash advance product is sold and executed properly so that it helps the merchant and doesn't hurt the merchant.

For those merchants reading this blog, proceed with caution when doing business with a non-NAMAA merchant cash advance provider. NAMAA members who bear the association logo on their website have taken the time, capital and commitment to ensure their offering is made in a standup way and helps them stand out from certain providers in the industry who have used tactics that the industry and the association look down upon.

Buyer beware, stick with a NAMAA member and look for the following logo:

Merchant Cash Advance Partnership Between United Bank Card and AmeriMerchant

I am proud to announce that United Bank Card, Inc. (UBC), ranked by the Nilson Report as one of the largest payment processors in the United States, and AmeriMerchant, one of the oldest and largest providers of merchant cash advances, announce their partnership to offer working capital to both potential and existing United Bank Card merchants. For more information on this partnership, click here.

This partnership will allow United Bank Card's 100,000+ merchants access to working capital in a environment that can be extremely challenging for small businesses seeking a traditional loan product from the bank.

Merchant Cash Advances Weren't Around in 1942

Merchant Cash Advances weren't around in 1942, but business bank loans were. According to today's Wall Street Journal article, Lending Falls at Epic Pace, US banks posted last year their sharpest decline in lending since 1942. Does anyone see a merchant cash advance opportunity for all those businesses in 2010?

Merchant Cash Advance Demand

Many merchant cash advance providers are indicating there is less demand for the product the last few months compared to this time period last year and the year before. There are several factors that can be responsible for this including many merchant cash advance providers were funding deals in the past that they would not fund today (and paid a very hefty price for doing so, namely going out of business). I think one of the key reasons which I have pointed out in the past is there also has to be an increase in business owner confidence for there to be an increase in demand for the merchant cash advance product.

The NY Times had an interesting article yesterday, entitled Businesses Reduced Inventories in December which further validates my theory, that if business owners don't have confidence in the economy, they are going to market / advertise less, hire less and stock lower inventories.

The article indicates, "The weakness in inventory rebuilding in December was an indication that businesses, still struggling to emerge from the deepest recession in decades, are not yet confident enough in rising sales to begin rebuilding stockpiles on a sustained basis."

As the CEO of, AmeriMerchant, one of the oldest and largest merchant cash advance providers in the space, I can tell you that a very common reason why merchants turn to alternative financing such as the merchant cash advance product is to stock up on inventory.

Merchant Cash Advance Industry 2009 Year End Summary

'Twas the night before Christmas, when all through the house Not a creature was stirring, not even a mouse; This pretty much summarizes the merchant cash advance industry industry the last few months - very quiet compared to previous years. Both from an industry news perspective and from levels of merchant demand compared to other years.

I'm hearing certain merchant cash advance provider's funding levels are down by as much as 40% from this time last year.

2009 was a very challenging year for many merchant cash advance providers - many losing their credit lines / funding sources. Some had to scale back considerably, others had to scale back 100% - meaning they shut down, layed off a large % of their staff, etc.

As I indicated in the middle of the year, many of these merchant cash advance providers could not sustain the huge losses they took by funding unqualified applicants in 2007/2008 or "crushed their cashflow" with too high of a withholding % to retrieve the future credit card receivables purchased.

One of the things I believe is needed to "jump start" demand for alternative financing products like a merchant cash advance from business owners in 2010 is the obvious - the economy needs to improve which will improve business owner confidence. The unemployment rate needs to decrease so consumers are spending more at their local businesses, hence giving local business owners a reason why they want to expand, buy more inventory, advertise/market, etc.

With all that said, there are a few good merchant cash advance providers still standing (no where near the number that there used to be) that make up 90% of the market. I still think 1 or 2 more will fall in 2010.

It will certainly be a interesting time in 2010 and I look forward to being one of the remaining industry leaders left in the merchant cash advance space.

From all of us at AmeriMerchant, we wish all the readers of the Merchant Cash Advance Blog, a Happy and Healthy Holiday and a very prosperous 2010.