Utilize Hidden Assets by Kevin Duffy

by 02 Jul 2008
The current state of the mortgage industry means commercial mortgage brokers and their small business customers need a creative approach towards generating new business. Small businesses are impacted because they can?t get loans ? for real estate or anything else. Because of the recent collapse of the sub-prime mortgage market, traditional options may be limited for many small business owners who are already challenged with low credit ratings. Their struggles are then compounded by the fact that those businesses may have only been open for one year or more, lack personal collateral or are in an industry that banks tend to reject. To fill in the revenue gap, brokers should consider expanding their product set with alternative working capital products. Commercial brokers talk to small and mid-sized business owners all day long. Many of these businesses need working capital, but are having an even harder time getting it. Home equity is tapped out, as are credit card limits. What alternative is out there for these owners to get the money they need to run their business? How can brokers assist their customers during this time? Long Island-based mortgage broker Gerald Filardi knows how to take advantage of a good opportunity when he sees one. Filardi started in 1999 in response to the housing boom happening right in his own backyard. His business quickly grew to include 400 members, nearly 80 offices nationwide and a telemarketing center employing 75 representatives. However, he began to notice, as did many in the industry, that the nonprime lending market issues of 2007 threatened his future business and would impact his revenue. His first instinct: diversify his product portfolio and fill in the revenue gap. "I decided to investigate alternatives that would take advantage of my financing background and leverage my company?s existing client base,? said Filardi. ?Every day we deal with small business owners who are looking for solutions to help them manage cash flow. I figured that credit would tighten, and small-business owners would be negatively impacted. I thought that there must be some product out there that could get them money during this period.? Filardi is not alone in his quest for sustained revenues and ways to provide value to his customers. Many businesses have the ability to access a little-known ?hidden asset? ? their future credit card sales ? to get funding. This type of funding is often called a Merchant Cash Advance and with more than six million small businesses today accepting credit cards as a form of payment, the market is huge and virtually untapped. A Reliable Option Adding a Merchant Cash Advance to their product portfolio offers commercial mortgage brokers the ability to serve these businesses and expand their customer base through a simple referral process. Partnering with a working capital provider gives them another need that can be filled besides real estate. Even businesses that could qualify for traditional loans may prefer the ease, speed and simplicity of this funding. The application is usually short and financial statements and or tax returns are rarely required. Approval decisions are made quickly. There are no fixed payment amounts ? the provider gets paid only when the business gets paid. The money can be used for any business purpose ? expand into a new location, renovate an existing location, or even pay emergency expenses. How It Works The business owner sells a fixed amount of its future credit card sales to the Merchant Cash Advance provider at a discounted rate in exchange for working capital today. A business can receive as much as $150,000 per location. Automated. Because Merchant Cash Advance providers work with the business? credit card processor to retrieve its percentage of the credit card sales, the process is completely automated. A fixed percentage of the business? daily credit card receipts is automatically retrieved (through the processor) until the obligation is complete ? typically within one year. Unlike loan products, there are no fixed payment amounts and no lump sum to be delivered on a given date once a month. Instead, collection aligns with the business? credit card sales, with a small percentage taken out every day. This helps the business manage its cash flow and minimize the drain on working capital. Plus, the automated collection process gives the merchant more time to focus on running the business. Unique. This kind of arrangement involves a purchase and sale of future credit card receivables; therefore, it is not a loan product. Application or expedite fees are rarely imposed. There is no interest rate, no fixed term and no monthly check to write. No personal collateral is required. In addition, because the working capital provider receives a small fixed percentage of each credit card transaction, there is no possibility of prepayment penalties or late fees. Knowing the fixed percentage to be taken makes daily cash management much more predictable. Simplified. Another benefit to this type of funding is that the application process is less complicated and has fewer documentation requirements than those of traditional financing. Typically, the business owner provides four months of processing statements to begin the approval process. Approval decisions are made quickly. In fact, working capital can be provided in less than 10 working days. If the business is already using an approved credit card processor, the time in which funds are provided can easily be reduced to 72 hours. The Solution Filardi Was Looking For. For Gerald Filardi, Merchant Cash Advances were the perfect fit to expand his portfolio. He began offering the product in May of 2007 and since then has increased his overall revenues. The very high renewal rate for the product is expected to result in significant residual commissions. ?Merchant Cash Advances are a perfect complement for my existing business because they can provide money to small business owners that traditional institutions usually can't, or won?t serve,? said Filardi. He continues, ?Now, in addition to helping owners with their mortgage needs, I can also provide them with working capital to keep their businesses running while making an additional commission." A Winning Proposition for Commercial Mortgage Brokers. You talk to small business owners every day. By adding working capital funding to your product line-up, you will be able to close more deals by funding those clients who can not qualify for traditional financing or who would simply prefer another more cash-flow friendly option. By offering a solution they may not know exists, you become a knowledgeable problem solver and advisor. You will not only win the initial sale, but increase the likelihood of future sales ? and additional referrals. That means more commissions. Who wouldn?t want to make more money? It?s a win-win for everyone. AUTHOR INFORMATION Kevin Duffy is Vice President of Sales for AdvanceMe, Inc., a premier provider of Merchant Cash Advances located in Kennesaw, GA. He can be reached at kduffy@AdvanceMe.com. For more information visit www.AMIBrokerProgram.com. SIDE BAR In a recent survey of 250 small business owners that currently accept credit cards, Capital Access Network asked the following question: ?Where do you turn to first for access to working capital (funding) for your business?? Not surprisingly, of the many sources that offer working capital, traditional banks rank at the top of the list, while new providers such as mortgage brokers fell to the bottom. With nearly six million small business owners accepting credit cards, the time is right for mortgage brokers to begin to reach out this virtually untapped market. Source: Capital Access Network Small Business Barometer (September, 2007)



Is TILA-RESPA a good or bad thing long term?