Merchant Cash Advance Article In The Green Sheet

Yes another article regarding selling a merchant cash advance appeared in the recent issue of The Green Sheet. Mike Evans, a Sales Manager from 2nd Source Funding in New York, wrote an article entitled Use rapport to score with cash advance. (Editor's note: Second Source Funding is a broker / sales agent for several merchant cash advance companies. I believe they also offer merchant fundings / business cash advances under the name Tribul Cash and BPS (Business Payment Systems) also based out of New York City.)

Mike points out several things that I've mentioned previously back in September, namely how former mortgage brokers are getting into the merchant cash advance business (see my previous blog entry - Invasion of the Subprime Mortgage Brokers).

I agree with what Michael is saying for the most part about how merchants are being inundated with merchant cash advance offers. The one interesting item he indicated is the average merchant cash advance factor rate is 1.38. My personal opinion, any merchant that is paying 1.38 for a cash advance can find the money less expensive for around 1.35 (which can add up to signficant savings to the merchant as the advance gets larger).

Merchant Cash Advance Companies Tightening Up

I keep hearing more and more people talking about how merchant cash advance providers are tightening up their credit criteria and eliminating certain industries that they will no longer provide working capital to. I predicted this would happen months ago, it's the same old story, you can't stay in business funding bad deals. My next prediction, the sales commissions being paid out currently will go down. As many cash advance companies mature and review their financials / profitability they will see they can not turn a profit by funding this type of merchant and paying out the level of commissions that they have been. I've already seen in the marketplace several merchant cash advance companies telling agents/ISO/resellers that they no longer want their business and/or lowering their commissions.

Merchant Cash Advance For $1 Million?

Merchant Cash Advances historically have maxed out in the range up to $150,000 - $200,000 per location, with the average amount being $20,000 - $25,000. There are a handful of companies now that are targeting a new market of $150,000 - $1 million+. These transactions are being structured more like a loan product, with closing fees and at a cost to the merchant comparable to hard money lenders. The credit criteria is much more stringent than a traditional merchant cash advance as the cost is lower. Sales agents shouldn't get excited too quickly, the commissions are typically much lower as well with this large advance product at a lower cost. The commission on a $1 million merchant loan product can be the same as a $200,000 traditional merchant cash advance. Providers of these high volume loans are betting that the bad debt will be lower because the cost is lower and the credit criteria is higher. Are they correct? They jury is still out and it will be interesting to see how this model evolves.

A little off the merchant cash advance subject - a ceremonial first pitch of the 2007 World Series - Boston Red Sox vs. Colorado Rockies

While this particular post doesn't have much to do with the merchant cash advance industry (other than the fact that I'm the President & CEO of a merchant cash advance company), this was something I did that was too cool not to post the video, throw out a ceremonial first pitch for Game 3 of the 2007 World Series.

Merchant Cash Advance Blog - 2007 Industry Funding Estimate

I have received several emails in recent weeks asking me what I think the current size of the merchant cash advance industry is. While there has been no formal report / survey ever conducted, I have done some informal research talking to several of the major players in the space (and have ideas of what most are doing) and I believe an accurate number for 2007 would be $1 billion in merchant cash advances funded in 2007. I estimate this number is up from $500 million in 2006 and will only continue to grow over time. Any feedback on this projection / estimate is welcome.

The story that doesn't want to die - the AdvanceMe Patent Invalidation

Yet another industry article about the invalidation of the AdvanceMe patent. This one is titled Time's up for one cash advance patent and was featured in The Green Sheet and written by Adam Atlas. Editor's Note: Adam is an industry attorney and I've personally used him and highly recommend him.

Merchant Cash Advance Companies Coming And Going

While a day doesn't go by that you hear stories of new companies popping up in the merchant cash advance space, I think you are also going to start seeing some merchant cash advance companies exiting the space and/or going out of business. For example, I've heard rumors that Acacia Funding has or is about to exit the merchant cash advance space.

I don't think most people realize the complexity and risk of this business. On top of that, companies are paying commissions out to brokers and agents that make it virtually impossible to turn a profit. Unfortunately some of these companies (and agents, brokers, ISOs that sell for them) will learn the hard way.

As an agent, you want to make sure you are working with a company that has the proper experience. High commissions by someone entering the industry may seem attractive, but a) it can't last long b) if they go out of business, you will most likely lose the backend residual associated with the deals you brought them.

AmeriMerchant has been in the merchant cash advance space for over 5 years and we have a very good understanding of what works and what doesn't and every indication shows by our explosive growth that we will be here for the long term. If you are a reseller / agent / broker for a merchant cash advance company, you want to make sure they have a viable business plan and they will be here for the long run too, unfortunately many will not.