When it comes to merchant loans, an inverse relationship often exists between merchant size and credit risk. The smaller the merchant, the larger the perceived risk; the larger the merchant, the lower the risk.
Dean L. and CC provide working capital and funds a maximum of a company’s average monthly credit card sales amount.
So, it makes sense – at least on paper – to get in the business of loaning money to bigger merchants. There is less risk, and the funding amounts are larger. Therefore, the revenue from the loan will be considerable. However, there is a reason few companies are willing to lend significant sums to merchants: It takes money – and lots of it. Most merchant cash advance companies don’t have such resources, so they focus on smaller merchants. It is more work, but still profitable.
Most likely, if a company has the means to offer a $3 million loan to a credit-worthy large merchant, it will. Dean L. and CC extends credit to larger merchants only and has the resources to assist clients whose monthly credit card volume is at least $200,000. It provides working capital and funds a maximum of a company’s average monthly credit card sales amount, offering amounts from $150,000 to $3 million.
CC is comfortable providing sizeable loans to the large-business segment. In fact, through its affiliate firm EGC it has been lending to this niche since 1937. CC managers have over a combined 100 years of experience in this business, and their clients represent more than $750 million in annual sales.
One of the advantages referral partners enjoy with CC is the ability to place deals that their existing source can not fund. “Because our target markets are larger merchants, we do not compete with other cash advance companies,” said Dean L, Founder and CEO of CC. “Processors, ISOs and MLSs can maintain their existing cash advance relationships and utilize CC for their larger merchants. We have also found that larger merchants are unwilling to pay the typical cash advance rates; so our product is a viable resource for ISOs.”
Unlike other funding options developed in the payments industry over the last five or six years, such as the purchase of future credit card receivables, CC adheres to true loan processes. It also reviews accounts receivable, inventory, equipment and real estate. Another advantage for referral partners and their clients is merchants and other clients do not need to change processors. Dean L noted that many of CC’s clients borrow their funds in addition to a bank loan, while some use the company instead of going through a bank. “Clients may want to grow and know they shouldn’t or can’t go back to the banker,” he said. “We are a good option for them. We fill in. We subordinate to the bank, and we don’t interfere with that relationship.”
Seasonal businesses, such as restaurants and stores in vacation destinations, are particularly well-suited to borrow funds from CC. Often it can be difficult for these types of businesses to secure additional funding, because they have low cash flow during off season months. In these cases, when a bank loan or additional funding from investors is either not ideal or impossible, CC can be a viable solution that pleases owners, as well as investors and creditors.
CC is also a solution for businesses that have considered mortgage refinancing, but due to the recent tightening of the mortgage market, either can’t or don’t wish to pursue that avenue. Also, mortgage refinancing takes time that many businesses don’t have. CC typically supplies funds within 10 days of receiving all the appropriate paperwork.
In terms of funding options, larger merchants typically are more experienced than their smaller competitors. “Others focus on small merchants and charge high rates,” Dean L. said. “As you get to the larger merchants they say, ‘We are bigger, more sophisticated. We know enough not to pay those kinds of rates.’ This is a new sales product, to a new group.”
CC rates are as low as 1% per month, so a six-month loan could be as low as 6%, 12 months as low as 12% and so forth. Terms are from six to 24 months. Repayment is typically 3% to 10% of credit card sales. Merchants can either pay a percentage of credit card sales or a fixed daily payment.
There are many ways to measure customer service. You can study surveys, ask people for recommendations or look at an existing client roster. In the case of CC, 100% of its credit cash advance customers have renewed their loans. “After three generations of being in the lending business, we understand customer service,” Dean L. said.
CC makes it easy for clients to renew loan applications. “Once they’ve paid 50% of the loan, they become eligible to renew,” Dean L. said.
CC provides financing for much larger businesses than other merchant finance companies. They target companies whose credit card revenue exceeds $600,000 per year. Their loans start at $150,000 and go up to $3 million. Many other companies reach their top limit where they begin. I have personally known Dean L since January 8, 2007. He is a class act.