Dear Restaurants – You’re Lucky We Like You So Much
May 14, 2012
Ask anyone in the Merchant Cash Advance (MCA) industry to explain how this financial product works and there is a 99% chance they will use a restaurant in their example. “Let’s say a restaurant is processing $10,000 a month in credit card sales…” and so the pitch goes. For years, restaurants have been the face of the industry. More than 30% of all MCA recipients are in food service, a trend that is more indicative of how needy restaurants are for capital as opposed to how they great they perform for the funders.
But on Main Streets all throughout America, many restaurants come and go in the blink of an eye. Many don’t survive their first year and some never even make it to opening day due to board of health issues, liquor licensing, and zoning laws. A friend of ours is a loan underwriter for one of America’s largest banks and although they will never, ever admit it, restaurants are on their ABSOLUTELY DO NOT APPROVE list. Do such lists exist? We are told they do. We are also told that a restaurant chain with 100 locations is just as terrifying to lend to as a solitary Mom and Pop café. Financing restaurants is so risky that the New York Times cites a Venture Capitalist in a recent article as saying “Anyone who says they like to invest in restaurants is probably not a great investor.”
So is the MCA industry on the path to extinction by placing so much stock in them or does the system of buying future sales at a steep discount offset all of the risk? Either way, the food service industry is lucky to have such a big cheerleader.
The ETA Continued… Part 3
April 20, 2012
Ooo La La! We’re talking about the orange circle in the back that says ‘Pricing as low as 14.9%’. Swift Capital was in attendance at the ETA expo this year and they have been aggressively marketing on the basis of transparency.
Also on the scene was Ilya Fridman, the CEO of Entrust Cash Advance. According to Entrust, “The main focus of his meeting was to come up with ideas for serve merchants in order to better protect their investments. Fridman sat in on a meeting whose goal was to understand the specific needs of merchants in order to tailor a program that will make the cash advance process easier for them and more compatible with their business. Fridman also helped generate ideas about how to protect advance lenders from fraud, which in turn will make cash advances less costly for the merchant, and therefore better for both parties in the long run.”
It’s like we said previously, you get out of major trade shows like this what you put into it. Some people scored serious business, others were in town to party.
BTW, we’re playing some serious phone tag with the founders of FundersCloud, the company that unveiled an awesome syndication platform at the show, but stay tuned because it warrants its own individual write up.
Below are some more photos of the ETA Expo in Las Vegas, which have been provided to us by Swift Capital:
See Our Previous 2 Posts Covering the ETA Expo in Las Vegas
Banks Conclude Dismal Loan Demand is a Result of Business Wariness
March 23, 2012
Banks are lending again but businesses aren’t taking the money… Surprised? We’re not. According to an article in the Wall Street Journal, “much of [last year’s] loan growth comes from lines of credit, not traditional loans. And instead of tapping available credit to power up plants, open factories and hire people, businesses are waiting.”
All of the statistics used to conclude about what businesses are or aren’t doing relied on data provided by the nation’s largest banks.
- Bank loans to businesses grew 10 percent last year after dropping 19 percent in 2009 and 9 percent in 2010, according to the Federal Reserve.
- Analysts are watching bank loan growth closely because it provides clues about whether companies are preparing to hire.
With the blind assumption that banks are the only institutions that provide financing to small businesses, experts are inferring faulty conclusions.
- Wells Fargo assumes businesses are uneasy about the future.
- JPMorgan reports that businesses just don’t want to use the money.
- Chase Bank believes that small businesses have enough money of their own and don’t need loans.
It seems that yet another one of our predictions is coming to fruition. What the banks conclude is wariness, is a direct contradiction to what is being experienced in the Merchant Cash Advance industry: an incredible, insatiable, all consuming demand for for working capital.
Dear Banks,
Small businesses are more confident than they’ve been in a long time.
Sincerely,
The Merchant Cash Advance Industry and Micro-Loan Providers
Why just yesterday, Yellowstone Capital announced the closing of a $1 million deal for a health care service provider. This is right after they financed a trucking business for $751,000. Millions of dollars are literally being poured into small businesses DAILY. United Capital Source recently finalized $1.25 million for a mid-sized business and these are just a few of the deals we’ve caught wind of. If we ran a story every time a large Merchant Cash Advance deal funded, well there would be so many stories that our web servers would crash. And because these deals are not being closed by Chase, Bank of America, or any other national financial institution, the Federal Reserve, major banks, and Wall Street Journal analysts assume that (a) businesses must not be getting financing and (b) businesses must not want capital.
Both are absolutely false. Prediction: The Wall Street Journal will run the following headline two years from now:
Economy and Small Businesses Experience Phenomenal Growth While Bank Lending is at an All Time Low. Experts Stumped.
Other News: President Obama Proposes New Legislation to Allow Him to Run for a Third Term in Office.
Everybody will know the reason for this except the big banks who will conclude that some kind of miracle has happened.
– AltFinanceDaily
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The Small Business Lending Climate is Bad, But it’s Not a Disaster
January 27, 2012
We’re proponents of the Merchant Cash Advance (MCA) financial product, but we also believe in objectivity. Over the last several years, MCA providers have collectively rallied the masses by branding themselves as a source of business financing in an economy where financing is scarce.
Many people consider the collapse of Lehman Brothers on September 15, 2008 to be the official start of the latest recession. Some will argue that we’re still in that recession. We would probably agree with that. Either way, there hasn’t been much improvement in the financial markets.
Yesterday, on Sean Hannity’s radio show, guest speaker Donald Trump, said “banks aren’t lending.” That’s verbatim and it says a lot, considering that yesterday was January 26th, 2012, a full three years after Lehman’s demise.
A friend of ours that does commercial banking in Philadelphia reiterated the same thing to us a few months ago and even went so far to reveal that restaurants and retail establishments are on their lending blacklist. These revelations paint a grim picture and it’s fortunate that the MCA industry has risen to the challenge to support small business owners.
But there is light at the end of the lending world’s black hole. This morning we had a meeting with a big bank in New York City and of course we asked the question, “Are you lending to small businesses?” They responded, “yes”, and we expected them to follow it with a “but.” Except they didn’t. In fact, they said that small business lending was their biggest market right now.
Intrigued, we demanded to know more. Approximately 50% of applications are being approved and the criteria is as follows:
- Minimum two years in business
- Minimum personal FICO score of 680
- Minimum $250,000 in annual sales
- Must have consistent pattern of sales
- No history of overdrafts or NSFs
- Must prove history of keeping substantial cash reserves in the business account
- Must be current with all vendors and business property landlord
- Collateral may be required
- Maximum approval amount is 20% of annual gross sales
This checklist is challenging. That’s why leveraging your future credit and debit card sales to obtain a large chunk of capital upfront is not only the preferred method of financing for businesses with bad credit, but also for those that are making a serious investment in themselves.
Nonetheless, if a bank IS lending, we’ll be the first ones to admit it. MCAs offer a lot of powerful benefits, but if all banks start lending again one day in the future, quoting Donald Trump might not have the same impact it once did. Fortunately, there are twenty other reasons why MCA is a solid solution, and what banks are doing or aren’t doing is completely irrelevant.
– AltFinanceDaily
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Note:
If you are a small business located in the New York City area that is interested in a loan as described above, we would be happy to personally refer you to that bank.
Occupy Main Street?
October 10, 2011
We didn’t protest… but we decided to see who was. Nowhere in the strange crowd did we find outraged business owners. Could the occupiers of Wall St. also be fighting against Main St.?
Wall St. bankers might have a lot of money, but small businesses employ the most jobs in America. Chances are if you are unemployed, unhappy, or overworked, it will ultimately be Main St. that will save you. But for time being, nobody is hiring. Business owners are pointing the fingers at banks, citing the lack of loans has stalled expansion. Excuses, excuses…
Wall St. might have perverted capitalism to enrich themselves, but Main St. has done just the opposite lately. When presented with an opportunity, thousands of businesses are unwilling to take the risk. “We’re just holding on for right now,” is a phrase we hear way too often from Mom and Pop shops.
We posed this question to an unnamed ‘Occupy Wall St.’ protester today:
MPR: “If we gave you $10 today, could you turn it into $20? “
PROTESTER: “Hell, I could turn it into $100. You can make money on a lot of stuff going on down here.”
Capitalism lives… It’s the drive and execution that enables someone with $1 to turn it into $2, $5, or $100 in a marketplace. It’s an intuition that Americans are born with, even those with anarchistic tendencies yelling in protest against it.
But something has happened to our beloved Main St.
Opportunities to grow are being passed up, and with that the ability to hire more workers. The rich get richer by investing their capital and taking risk. In a competitive marketplace, we must always seek out ways to grow, expand, and improve. “Holding on” is not a strategy, at least not one that will lead to hiring. Stability does not prepare you for downturns, nor will it make you rich in the long term. Stability is actually the beginning of a long road that will one day lead you to being mad at those who got rich.
The math is simple. If you turn $1 into $1.10 everyday, while somebody else turns $1 into $2, expect yourself to be very poor by comparison 20 years from now. Whether you have a small retail store or a national franchise, don’t let your guard down, take chances, think big, and elbow your way to the top 1%. You’ll create a lot of jobs on the way.
Once you’re ready to turn $1 into $2, don’t worry about the lack of bank loans, Merchant Cash Advance providers will offer you $1 in return for $1.30. You net the profits and can redo it as often as you like. Naysayers will tell you it’s expensive and it would be if you didn’t invest the dollar. Rebuilding the economy begins with small business. Show them growth, show them jobs, show them how you were born to turn one dollar into two…
AltFinanceDaily
http://www.merchantprocessingresouce.com
Learn about Merchant Cash Advance Here
Some video clips we took while we were at the Wall St. protest:
Funding Floodgates Reopen
September 20, 2011If you’re a business owner, it’s time to get ’em while they’re ~HOT! Small business funding is BACK and more available than they’ve been in years. And guess what? Because we’re just a news site, we’ve got no reason to douse you with a cheesy sales pitch. There’s a lot of money out there right now and that’s the truth.
Merchant Cash Advance (MCA) continues to dominate the alternative financing market but a few new options are changing the landscape. You might call them ‘alternatives to the alternatives’, deals that are based on MCA but have all the bells and whistles of a loan; Fixed time frame, a payment schedule, and even personal guarantees! The underwriting criteria generally requires a set of recent healthy bank statements and semi decent credit credit (yes, your credit still matters) to qualify. Beyond that, it’s up to the individual lender to present their respective checklist of closing documentation. This usually includes some combination of a business property lease, applicant ID card, business permit, and a recent tax return. That’s it. Oh, and the wait time? Expect a week long process if you’re quick on the draw with paperwork.
Two years ago, there wasn’t much variety in the MCA space. Business owners could shop all they wanted but the underwriting and cost structures were essentially identical everywhere. Now there are factor rates that range from from 1.20 to 1.65. It’s more merit based than it used to be. The higher credit rating, stronger cash flow businesses can earn something better than the one-size-fits-all 1.35 factor rate of yesterday. On the same token, the complete credit averse can grab a shot at financing too, but at a steep price.
But there’s more to it than just cost, there’s also the setup:
Don’t want to switch your merchant account?
Stay where you are: There’s a significant chance your merchant processor already has a contract with the MCA provider you’ve chosen. Often times your sales representative may encourage you to open a new merchant account for the lower discount fees and to have a higher degree of control if problems arise. Ultimately, a new merchant account is not essential if you want a MCA.
Leverage your strong cash flow history: If you’ve managed to keep a large positive balance in your bank account for the last few months, your MCA provider could simply extract the agreed percentage from there, rather than directly through the merchant account.
Lock it up: A Lockbox provides the MCA provider with peace of mind by obtaining their payments without the risk of Non-Sufficient Funds from the debit method but also allows you to keep your merchant account. It’s frequently used as a compromise for businesses that are legally prevented from changing their merchant account(i.e. franchisees), but are too cash flow weak to qualify for direct debit payments.
But the buck doesn’t stop at the many ways you can do MCA. You’ve got options!
Merchant Loan: An actual loan based on your credit card sales history. A percentage may still be withheld from each card sale but a periodic or an end-of-term lump sum payment will be applied as needed to ensure the loan is completed within the time frame allotted.
E-Bay/Amazon Loan: Get a loan based on your sales history on Ebay.com or Amazon.com. The largest lender of this type is Kabbage.
Cash flow loans: We described these in the 2nd paragraph. Expect cost ratios from 1.12 to 1.55 and term lengths between 4 and 24 months.
How can you find the floodgates?
You can refer to the directory of direct MCA providers but can check out alternative lenders such On Deck Capital, ForwardLine, Kabbage, and Sure Payment Solutions if you want to diversify your options.
Kennesaw based funding provider, AdvanceMe expects to fund $1 Billion in the next two years. That’s nearly as much as the entire MCA industry did in the last two years combined.
2009 was a year full of “I should’ves” as in “I should’ve obtained financing before the financial crisis.” Cash is finally available to small businesses again and although it is more expensive than it used to be at the local bank, there may never be a time where the process is this quick, approval is this easy, or where your credit score is weighted this lightly. We’re not the salesman here, just the messenger. If there was any project you were remotely considering, now is the time to make a move… Don’t wait until the funding levees have been restored.
– AltFinanceDaily
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