In a tightened credit environment with fewer loan opportunities, one firm is offering operators nationwide short-term capital loans to finance new vehicles, grow operations, or develop a temporary credit line.
LOS ANGELES — A period of low prices and good deals can be one of the best times to expand a business and position it to reap the rewards of an eventual economic recovery.
But for a business to take advantage of such opportunities it needs capital. If that capital is hard to come by, growth likely will not happen.
To help operators tap needed funds, a Southern California capital firm is offering quick, easy access to short-term capital. The program was announced at the Greater California Livery Association meeting on Feb. 9 in Los Angeles.
Ty Kern, vice president of business development for Performance Commercial Capital in La Quinta, Calif., told operators that the recession and credit crunch have affected small businesses the most, which make up 70% of the U.S. economy and are least likely to see any funds from the federal stimulus package passed in February 2009. Getting a typical bank and/or SBA loans can be time-consuming and limiting, given the restrictions and requirements in this tougher credit environment.
For many small businesses, one of the few viable options available for financing are short-term capital loans with flexible payback terms. Typically this type of financing is offered exclusively through merchant cash advance and or factoring companies. The problem is that due to the high cost of the capital (38%-49%) the average small business can’t afford to borrow enough money to really make a difference. The reality is that more often than not that this type of loan may just be the final nail in the coffin of a small business owner.
Performance Commercial Capital tries to cut the cost of capital by 33% to 65% and further offsets the cost of capital by saving the company 25% to 60% on its merchant services, bringing the costs in line with traditional bank financing, and in most cases over time, lowering the cost of capital to 0%/free.
The way a loan would work is an operator borrows $50,000, for example, and then pays back $60,000, an effective 20% rate, but with a flexible time period, such as 6, 9, 12 months or more. The payback amount stays the same regardless of how long the operator needs to pay back the loan. Performance will also couple the loan with reduced costs for merchant services credit card processing, which means operators can save about $100 to $5,000 per month on such fees and costs, depending on monthly credit card volume.
If an operator or small business, wants to borrow more money during the course of the loan payback, let’s say $25,000 in addition to the original $50,000, then Performance will lower the overall “interest rate” a few percentage points, say from 20% to 18%. Over several years, the overall value of the lowered cost of borrowed money along with merchant services savings will either completely offset or exceed the interest amount paid to Performance Capital, Kern explained.
Kern showed GCLA members an example of a recently proposed loan in his presentation: The merchant borrowed $50,000, the payback amount was $59,842.18, and Performance saved the merchant $792.98 per month on its merchant services. In this scenario the merchant’s capital was completely free in 12.41 months. ($792.98 X 12.41 = $9,842.18)
In a nutshell, Performance Commercial Capital is offering a bank-style product that plays out more like a cash advancing style product, Kern said. The firm was formed to bridge the gap between products offered by banks and factoring/cash advance companies. The goal is to build long-term partners whose businesses grow and gain more clients.
“This is the only option for quick, usable capital,” Kern said. “These are short-term working capital loans. We can lend to 60-70% of people who cannot get money. We’re in business lending money, so we have partnered with Visa, MasterCard, Bank of America, American Express, etc. to allow merchants to go to the source and not have middle man to make money off of them.”
Information: Ty W. Kern, firstname.lastname@example.org
Other related points:
• By analyzing a merchant’s bank statements, merchant processing statements and other factors, Performance Capital enables small businesses to use the strength of their cash flow to manage their demands for capital.
• Performance will work with businesses considered marginal or too risky for banks, approving clients far below a traditional bank’s FICO score cutoff.
• Offers half the financing costs of factoring and MCAs, and lends two to three times more capital based on business revenue.
• No hidden costs. The amount loaned is exactly what is owed regardless of payback timeframe.
• Much less intrusive application process and much shorter time frame to get capital.
• Performance shops more than 200 different banks/funds and has access to all four traditional sources of capital. This enables the firm to qualify applicants for the maximum loan amount with the lowest payback rate possible.
• Saves clients 25-60% on merchant services account in order to offset the cost of the capital.
• All our programs offer a renewable option. More than half of merchant clients with Performance renew with a larger loan amount and lower interest rate.
• No personal guarantees for repayment
• No security interest taken in home, business, equipment, or inventory
• No points or upfront fees
• No fixed monthly payments
• No coupons or checks to write
• No impact on their ability to qualify for other financing
• No business use restrictions on the funding
• No hassles - quick application & fast funding
1) Minimum 10+ credit card batches/month for merchant program or 15+ deposits/month for Bank Only.
2) Minimum one-year in business for merchant program or two years for Bank Only.
3) Minimum $75,000 annual gross revenue per year.
4) Minimum $6,000 per month in credit card volume or a minimum average daily balance of $3,000 for Bank Only.
5) Minimum nine months remaining on the current office lease. (Established home based businesses are eligible providing that they meet all other qualifications.)
6) Minimum 500 FICO score.
7) No open bankruptcies or tax liens (without a payment plan in place)
• Complete application
• Bank authorization form
• 3 months bank statements and 4 months merchant statements (Merchant product)
• 6 months bank statements (Bank Only product/no or low credit card bus.)
• Copy of driver’s license
• Proof of ownership (business license or other document showing ownership %s)
Sources: Martin Romjue, LCT Magazine; Performance Commercial Capital