February 29, 2024

Searching for Capital: What You Need to Know About Merchant Cash Advances

Joe Maguire: Ami Kassar. Joe Maguire: “I haven’t lost my shirt yet.”

Searching for Capital

A broker assesses the small-business lending market.

Every morning, before I start my day, I stop for a cup of coffee and a bagel near my office. I have to choose between the local Dunkin’ Donuts franchise and Maguire’s, a boutique sandwich shop. Invariably, I pick the sandwich shop. I know the owner, Joe Maguire, and I like to support him. Also, his coffee is great.

Mr. Maguire has owned the shop for almost a year. He knows his customers by name. I often see him at the back of the store loading products onto the shelves after a trip to Costco or helping with a breakfast run.

“How are you doing, Joe?” I ask.

“Hanging tough, Ami,” he replies with a smile. “I’ve almost survived Year 1, and I haven’t lost my shirt yet!”

As I walk to work, I feel good about my choice as a consumer, but I don’t feel great about how our banking system is treating Mr. Maguire and millions of other small-business owners like him. The life of a small retailer is tough these days, and there are few signs that it’s getting easier.

What, for example, are Mr. Maguire’s options if he wants to get a loan to increase or expand his business? What happens if the radiator goes out and needs to be replaced, or if the oven blows up in the back of the kitchen? What happens if there is a bad winter and sales slow unexpectedly?

Mr. Maguire probably cannot turn to a bank. He has two strikes against him: he hasn’t been in business for at least two years, and, unless he is one of the lucky few with equity in their houses, he has no collateral for a loan. The bankers aren’t interested in the coffee urns or the coolers holding Snapple.

If Mr. Maguire is lucky and gets good advice, he may find one of the few banks that still offer unsecured Small Business Administration Express loans up to $50,000. The good news is that if you can get one of these loans, the rates are reasonable. The flip side is that Express can still take a few weeks and lots of paperwork, and Mr. Maguire may not have time to wait.

In this situation, he may well turn to one of the merchant cash advance lenders that are having a field day in today’s economy and that will promise Mr. Maguire unsecured money in just a few days. The lender will review Mr. Maguire’s recent merchant processing statements, bank statements or both, and then make what is often a tempting offer. In Mr. Maguire’s case, the offer might be an immediate $20,000 in exchange for $25,000 of future receipts.

It sounds tempting because the owners figure they can get $20,000 immediately, and it costs only $5,000. Think about it, though. The $5,000 is 25 percent of the amount they’re borrowing, and it’s actually even worse than that. Considering that most of these loans have to be paid back within six months, the actual interest rate may be more than 50 percent. That is a lot for any small-business owner to swallow. The lenders can get away with the high rates because they are careful not to call these transactions loans. They say they are buying a piece of a company’s future revenue.

If you are in the market, here are some things to consider:

Insist on seeing all of the fees upfront, and make sure you understand every one of them.

Make sure you understand the terms. Some of these loans involve a daily fixed amount taken from your account; others take a percentage of your credit card sales every day. A lender, for example, might demand 10 percent of your daily credit card receipts until you have paid back the agreed-upon amount. Don’t focus on the 10 percent figure — that is not the rate you are paying. I had to explain to one client that his effective interest rate was more than 90 percent.

Insist that the cash-advance company provide at least a projected annual percentage rate, or A.P.R., for your loan. This makes it much easier to compare the advance with other options. In addition to an S.B.A. Express loan, there may be business credit cards or equipment leases available to you at better rates.

Shop around. The cash-advance business is competitive. Make sure you’re getting the best possible rate.

The sad reality of today’s credit markets is that many small businesses have no choice but to consider these types of loans. In our work at MultiFunding, we often find that there is no better option. Still, whenever I am forced to put a client into one of these high-rate loans, I think about Mr. Maguire and the struggle he is facing to build his business, as well as his crew of four employees who count on him. Yes, the merchant cash advance lenders and the hedge funds that back many of them are filling a need in today’s market. But there has to be a better way.

Ami Kassar founded MultiFunding, which is based near Philadelphia and helps small businesses find the right sources of financing for their companies.

Article source: http://boss.blogs.nytimes.com/2012/10/30/what-you-need-to-know-about-merchant-cash-advances/?partner=rss&emc=rss

Proliferation of Choices Hurts BlackBerry Sales, Analysts Say

The reaction was swift and sharp. The stock fell to an eight-year low Friday. One reason for the worry, analysts say, is that no amount of advertising will help increase the sales of BlackBerrys in the United States because the current line is a jumble of models. There are BlackBerrys that flip, BlackBerrys that slide, BlackBerrys with touch screens, BlackBerrys with touch screens and keyboards, BlackBerrys with full keyboards, BlackBerrys with compact keyboards, high-end BlackBerrys and low-priced models.

Features have proliferated on BlackBerrys as part of RIM’s move to the broader consumer market, and so have the number of models. Since 2007, RIM has introduced 37 models. The company, in a statement, said it did not know how many models were on the market.

Adding to the shopping confusion are RIM’s product names, which generally rely on four-digit model numbers and sometimes have different products sharing a name. The BlackBerry Torch 9850 and 9860 are touch-screen phones that are on some shelves next to the BlackBerry Torch 9800 and 9810, touch-screen phones with slide-out keyboards. (The model number differences reflect models adapted for different cellphone systems.)

By contrast, Apple has introduced only four iPhones since 2008 and all were basically the same phone with differences in the amount of storage, or upgrades from older models.

Shaw Wu, an analyst with Sterne Agee in San Francisco, said that even though he closely followed the company as part of his job, he was unable to keep the various BlackBerry models straight at times. “The company may not see this, but its product line is still too complicated,” Mr. Wu said. “They have all these different models, all these different model numbers and nobody knows what anything is. Apple’s a much bigger company, but they’ve made it simple for people.”

Model proliferation and fragmentation is nothing new in the wireless business. Nokia offered a wide range of cellphones tailored to appeal to specific, sometimes comparatively small, groups of buyers. And several companies, notably Samsung, also offer an array of phones.

But in the era of more sophisticated smartphones when many shoppers are already baffled by choices between operating systems and software features, some analysts and marketing experts say that RIM is only confusing consumers, rather than increasing sales, with its array of handsets.

The extensive product line has not reversed RIM’s declining market share in North America. Canalys, a market research firm based in London, estimates that BlackBerrys accounted for only 9 percent of the United States market in the third quarter of this year. At the end of 2009, it held almost half the market.

RIM’s variety of BlackBerry models present it with an additional problem that could also make a comeback less likely. The different keyboards, screen sizes and screen types used by RIM make it more time-consuming and difficult to create and test BlackBerry apps. Without a lot of apps, consumers see the phones as less useful than an Apple or Android phone.

“It can be hard,” said Al Hilwa, the director of the applications development software program at IDC, a technology research firm. On top of the current fragmentation, he added, apps developers often struggle to accommodate older BlackBerry models that lack features, like a GPS receiver, that are now common on other devices.

Some analysts also argue that developing and supporting a smorgasbord of models is spreading RIM too thin. Its entry into the tablet computer market, the PlayBook, arrived in April without key features like e-mail, and the release of software to fix those problems is not expected until February. As a result, considerable concern has risen about RIM’s ability to successfully introduce phones next year. Those phones would be based on a new operating system that the company hopes will rekindle interest in BlackBerrys.

It is not just some financial and technology analysts who find the BlackBerry lineup overwhelming. Even some enthusiasts would like to see the company consolidate its models. On Crackberry.com, a Web site that reports even the smallest BlackBerry product and software developments, Kevin Michaluk, the editor in chief, wrote last month that the most common requests he receives are about which BlackBerry model to choose.

“Sometimes less is more,” he wrote. “In comparison over the years, RIM has taken the opposite strategy, giving customers almost too many options.”

Simona Botti, a professor of marketing at the London Business School who studies consumer decision-making, said that while people would always say that more choice was better, they were often mistaken.

Article source: http://feeds.nytimes.com/click.phdo?i=be56735a82dce49aabe310fc043aaba7

Retail Sales Rose Strongly in September on Autos

They spent more on autos, clothing and furniture last month to boost retail sales 1.1 percent, the Commerce Department said Friday. It was the largest gain in seven months.

Auto sales rose 3.6 percent to drive the overall increase. Still, excluding that category, sales gained a solid 0.6 percent.

The government also revised the August figures to show a 0.3 percent increase, up from its initial report of no gain.

Stocks rose after the release of the report, which is the government’s first look at consumer spending each month. The Dow Jones industrial average climbed 87 points in afternoon trading. Broader indexes also rose.

A separate Commerce report showed that businesses added to their stockpiles for a 20th consecutive month in August while sales rose for a third straight month. The increase suggests businesses were confident enough in the economy to keep stocking their shelves.

Stronger consumer spending could help tamp down concerns that the economy is at risk of a recession. Consumer spending is closely watched because it accounts for 70 percent of economic activity.

The increase “shows that households are not completely down and out,” said Paul Dales, senior U.S. economists for Capital Economics. Dales said the data correspond with an annual growth rate of 2 percent for consumer spending growth in the July-September quarter.

Dales cautioned that weak hiring will likely prevent consumers from spending at this rate on a month-to-month basis.

“Sales growth is unlikely to remain this strong,” he said. “So although a recession has become less likely, households still can’t be relied on to drag the US economy out of its continued malaise.”

The jump in retail sales prompted some economists to boost their growth forecast for the July-September quarter. Dean Maki at Barclays Capital Research said his group raised its forecast to 2.5 percent, up from 2 percent.

Chris G. Christopher Jr., senior economist at IHS Global Insight, said the increase in spending was an improvement from the first half of the year. Still, he said overall growth was not enough to generate significant hiring gains.

“Do not break out the champagne. Things seem better on the consumer and retail fronts, but consumers still have many problems,” he said.

The September gains were broad-based:

— Department stores sales increased 1.1 percent, a big turnaround from August when sales had fallen 0.5 percent. The drop was blamed in part on Hurricane Irene disrupting shopping along the East Coast.

— A larger category of general merchandise stores, which includes big-chain retailers including Wal-Mart and Target, showed a 0.7 percent rise last month after no gain in August.

— Specialty clothing stores sales rose 1.3 percent, after a 0.4 percent August drop.

— Sales were up 1.1 percent at furniture stores but edged down a slight 0.1 percent at hardware stores. That surprised economists, who expected more traffic from people seeking to repair damage from the hurricane.

— Gas station sales rose 1.2 percent.

The overall economy grew at an annual rate of 0.9 percent in the first six months of the year. That was the weakest growth since the recession ended in June 2009.

High unemployment and steep gasoline prices forced many consumers to cut back on spending this spring. Without more jobs or higher pay increases, they are likely to keep spending cautiously.

In September, the economy generated 103,000 net jobs. That’s enough to calm recession fears, but it is far from what is needed to lower the unemployment rate, which stayed at 9.1 percent for the third straight month.

Employers have added an average of only 72,000 jobs in the past five months. That’s far below the 125,000 per month needed to keep up with population growth. And it’s down from an average of 180,000 in the first four months of this year.

Article source: http://feeds.nytimes.com/click.phdo?i=5e25c833baddff2a815c923a0f5a6a14

As Sales Decline, Wholesale Inventories Grow

The Commerce Department said Friday that wholesale inventories rose 1.8 percent in May, the biggest gain since October. Some of that increase reflected an unwanted buildup of goods because sales declined.

Sales at the wholesale level fell 0.2 percent, the report said. The sales drop was led by a big decline in auto sales, and the inventory buildup also reflected a large rise in auto stockpiles.

The weakness in May sales offered the latest evidence that the economy slowed in the spring as consumers struggled with soaring gas prices and high unemployment.

Manufacturing has been one of the strongest sectors of the nation’s economy since the recession ended two years ago; factory production has been supported by concerted efforts on the part of businesses to restock depleted shelves. With the May rise in inventories, stockpiles are now 18.9 percent higher than their lowest level, hit in September 2009.

Factory activity weakened this spring, in part because of temporary factors. High gasoline prices caused consumers to spend less elsewhere, which cut demand for factory goods. And the March 11 earthquake and tsunami in Japan led to supply-chain disruptions that slowed manufacturing in the United States, particularly in the auto and computer industries.

There are signs that those impediments are lifting. Gas prices have dropped considerably since peaking in early May at a national average of nearly $4 a gallon. And manufacturing activity expanded in June at a faster pace than in the previous month, according to the Institute for Supply Management. That suggests the parts shortage is beginning to abate.

The economy grew at an annual rate of 1.9 percent in the first three months of the year. Analysts are expecting similarly weak growth in the April-June quarter.

Growth is expected to pick up to a 3.2 percent rate in the final six months of the year, according to an Associated Press survey of 38 economists.

Still, growth must be stronger to significantly lower the unemployment rate. The economy would need to grow at a 5 percent pace for a whole year to significantly bring down the unemployment rate. Economic growth of just 3 percent a year will simply keep up with population growth and hold the rate steady.

In another report, the Federal Reserve said consumers took on more debt in May and used their credit cards more for only the second time in nearly three years.

The Federal Reserve said Friday that consumer borrowing rose $5.1 billion in May, the eighth consecutive monthly increase. It followed a revised gain of $5.7 billion in April. Borrowing in the category that covers credit cards increased, as did borrowing in the category for auto and student loans.

The overall increase pushed consumer borrowing to a seasonally adjusted annual level of $2.43 trillion in May. That was just 1.7 percent higher than the nearly four-year low of $2.39 trillion hit in September.

The increase in credit card borrowing marked only the second monthly gain since August 2008. Households began borrowing less and saving more when unemployment spiked during the recession. The category is down 4.4 percent over the last year and 18.5 percent from its peak in August 2008.

Article source: http://feeds.nytimes.com/click.phdo?i=eb3f58cecd0beccf9cd1a7bec33fc455