More than just another MCA

When Capital for Merchants LLC launched in 2005, the North American Bancard subsidiary joined other early pioneers in the merchant cash advance movement. A decade later, thanks to advances in technology, much of the application process has been streamlined through automation; approvals occur within 24 hours and funding in about 72 hours, in most cases.

According to CFM, its average loss rate runs 7.2 percent, compared with 11 to 12 percent, which is average for most MCA companies. "We have very skilled underwriters that have been on this course for 10 years," said Rhett Rowe, who joined CFM as President in June 2015. "We happen to have a very tenured underwriting staff."

How does all of this translate for merchants? For businesses that may not qualify for traditional loans, CFM primarily focuses on merchant categories classified as high-risk elsewhere. It targets bars, restaurants, automotive repair, beauty salons, barbershops, grocery stores, health and beauty spas, and limousine services, for example.

"Coming out of corporate banking after 25 years, and most recently three years in asset based lending, the thought was we're basically targeting companies that are on banks' restricted or prohibited lists," Rowe said. "What we offer is really short-term bridge financing in the form of a cash advance."

Financial support when urgently needed

According to Rowe, CFM has expanded its funding size from $5,000 to $500,000, to upward of $1 million for U.S. based businesses, but the average ticket size is $31,400.

"We generally offer cash advances for up to 12 months, although we have the exception-based provision to go up to 18 months for the right type of opportunity," he said, noting that most of those exceptions apply to merchants already processing through North American Bancard. He noted that in these cases, CFM does a split of future credit card sales to pay down advances through cash flow.

"Ninety percent of our business is outside of NAB at this point, in other words merchants that process through another company," Rowe said. In these situations, CFM reviews three to six months of bank statements to assess bank deposit volume, insufficient funds history and the relative consistency of deposit amounts made. Based on the merchant's monthly volume average, up to 140 percent of that amount can be funded as a cash advance, he said.

Merchant uses for MCAs run the gamut from paying off delinquent taxes or rent to payroll, new equipment and business expansion. "It varies depending on the industry type," Rowe said. "What I like about the business and this segment of the industry is that it offers ultimate flexibility in terms of use of proceeds and very quick timing in terms of funding. It's very much a high sense of urgency type of product delivery."

Since joining CFM, Rowe has reached out to a number of businesses and its monthly volumes have increased considerably. "We have a very high level of service," he said, likening it to a concierge type relationship with the merchants and ISOs it serves. "We take very good care of both merchants and ISOs to the degree that we have achieved an 80 percent renewal rate in our business," he added.

Generous commission structure

As of December 2015, CFM's ISO channel program offered an 8-2-8 commission structure, which breaks down to 8 percent upfront, 2 percent in residual and 8 percent on renewals, Rowe noted.

But that could change soon. He indicated that CFM would like to enhance earnings potential for its channel partners. In the future, CFM may also offer additional types of financing programs to assist merchants. Most importantly, guided by this former veteran of the banking industry, CFM believes it will flourish while traditional players remain on the sidelines about funding merchants that might some day become retail leaders.

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