Fixed payment loans for small businesses

American Microloan LLC offers what it calls a more predictable and cheaper alternative to merchant cash advances: nonbank loans, sold through ISOs, that merchants can amortize in fixed installments. The company offers cash advances and loans; however, it has made loans its premier product and sells considerably more of them than cash advances, according to Jack Miller, the company's Director of Business Development.

"We do have nonfixed options, but most of our products are fixed" in terms of repayment, he said. He added that the company sells primarily to retail merchants, but it will also sell loans to other vertical markets when businesses meet specific credit history and cash-flow requirements.

Funds for small to midsize businesses

Loans generally begin at $15,000, and the company has no upper limit on how much it will loan, Miller noted. "We don't have a cap," he said. "We don't want to do less than $15,000; maybe we'll make an exception and do $10,000, but our average deal is around maybe $60,000 to 70,000."

Founded in 2001 by Craig Sheinker, who also owns Quantum Corporate Funding Ltd., American Microloan was established to provide small and midsize businesses a cheaper alternative to merchant cash advances, according to Miller.

"It was founded to offset the heavy costs from the cash advances," Miller said. "We offer a much more reasonable product for qualified merchants." He said merchants who don't qualify for bank loans often turn to merchant cash advance, and cash advance products tend to carry higher interest rates and fees than most bank loans.

American Microloan provides a loan that's cheaper and easier to qualify for than the average bank loan. It is harder to qualify for than most merchant cash advance products, but is in certain ways a superior alternative to either cash advance or a bank loan for those who do qualify, according to Miller.

Some merchants prefer cash advance because the repayment is made as a percentage of card receivables, meaning it ebbs and flows in line with a merchant's business. When business is good merchants pay higher installments; when it's bad, they pay lower ones. For example, if the "split" is 15 percent, a merchant who brings in $1,000 one day pays $150, but only $15 on a day it brings in $100. By contrast, loans are repaid in fixed amounts.

Multiple advantages to loans

However, for merchants with reliable cash flows, a loan offers several advantages over a cash advance, Miller said. For one, American Microloan's typical loan is 70 percent cheaper than a typical cash advance, according to Miller.

Cash advance providers also tend to charge higher rates of interest because they aren't subject to state laws that govern interest rates on loans, Miller noted.

Furthermore, he said that advances tend to be loaded with additional fees - sometimes "hidden" fees that aren't announced upfront - while his company's loans are relatively unloaded and transparent.

American Microloan's rate structures are simple and straightforward, Miller stated. Interested parties can visit American Microloan's website and use the "payment estimator" to calculate what type of loan they're likely to qualify for.

Woochae Chung, American Microloans' Managing Director, said, "Loans typically cost $0.12 on every $1.00 borrowed over 6 months, $0.19 over 9 months, and $0.26 over 12 months. Actual cost of borrowing can’t be determined exactly upfront, but it is a close estimation. There is no application fee. But the borrowers get charged for out-of-pocket expenses if and when they get funded. It is about $300. This is added to the loan as an expense, i.e., the borrower will receive the full amount of the loan. Longer terms are available if the borrower qualifies up to 2 years."

Because loans are repaid in fixed installments, borrowers know precisely how much they'll be paying over a given time, which is in contrast to the uncertainty of a percentage-based rate, where the repayment fluctuates depending on a merchant's daily intake, according to Miller.

Simplifying the process further is that the money is docked - Monday through Friday, via the automated clearing house (ACH) network - from merchant checking accounts, rather than pulled as a "split" from their incoming receivables. The latter process also requires the integration of new software into merchant POS systems and special arrangements with their processors, Miller pointed out.

Because some processors don't support cash advance, merchants who want the product commonly have to switch processors, Miller said. With an American Microloan loan, merchants never have to change processors, and the technical complications of a split-based cash advance repayment are obviated, he added.

Additionally, because American Microloan recoups its loan by taking ACH-based payments from merchant checking accounts, and not percentages of credit card receivables, merchants who don't accept credit cards or who otherwise make most of their money with cash and check payments can qualify for the program. The loan is based strictly on a business's total revenue, without consideration to methods of payment acceptance, Miller said.

Strict yet flexible criteria

While American Microloan prefers not to adjust the terms of any loan, there is sometimes a measure of flexibility for merchants who find themselves temporarily saddled with extra costs, lower revenue or otherwise in a position where it's difficult to make the agreed payments, Miller pointed out.

"We're very flexible," he said. "If a client calls us and says it's been a really tough month, we may take that into consideration and cut the [payments] in half or something. It's a family run company and we're all easy to reach and talk to about these kinds of things. Obviously [adjusting a loan] is something we prefer not to do, but we have done it and will continue to do it where we feel it's appropriate. We have a partnership with the merchant, and our goal is to keep them healthy."

Miller said that, while the company's eligibility criteria are fairly strict, it can be more flexible in considering new clients because of its close-knit executive structure and personalized service. "We're all within arms length of each other," he said, referring to the company's officers.

Miller noted that the company recently approved a $150,000 loan for an Arizona company that had only been operating for four months.

Typically, that wouldn't be a long enough history to qualify, but American Microloan's team was able to take a close look at the particulars of the deal and make an exception, Miller said. However, he stated that the company is "the most conservative cash provider" in the industry. "We do not lend to sole proprietors," he said. "We consider them individuals. We only lend to businesses, and they have to be credit-worthy and have a good cash flow."

Tony Palazzo, Managing Member of the ISO, Advance Smart LLC, said American Microloan's products are a good fit for his company's higher-end merchants. "Being that they're the cheapest money, they're the strictest around, too," Palazzo said. "So it's for the higher-end business with better credit and better volume, since the cheaper money comes with stricter policies."

Palazzo pointed out that at a time when bank loans are difficult to obtain, American Microloan's products have five- to seven-day turnarounds. "So it's a lot easier to get," he said. "Generally [my clients] use it for inventory and equipment, then after that facility upgrades, and aside from that, it's just working capital."

While approving merchants on a loan is sometimes difficult, finding merchants who are interested is not, Miller said. The value of the company's product comes from its attractiveness compared with other financing options, he said.

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