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A fresh source of capital is now available to businesses where a high proportion of their settlements are received through card channels. The model is well established in America, this is, as far as I am aware, its first application in Europe.

A multi-billion dollar market in the US, initial, though thorough, research by Merchant Cash Express suggests that a potential market of 500,000 users is to be found in the UK. Frank Capozza, managing director, has opened an office in Mortlake where he will presently be joined by Ian Morrison, director and lead underwriter and Richard Morley, also a director and responsible for recruiting independent sales offices, training and management.

Frank sees the UK as potentially a rich source of new business. Unlike the US, the M25 circle offers a concentrated population of 10 million consumers with related target markets such as restaurants, hotels, guest houses, wet trade retail outlets, florists, seasonal and general retailers.

This brings the sales thrust of the product into focus. A facility is offered based upon customers’ card revenues. Daily card takings are routed through the revolving facility, subject to a charge by Merchant Cash Express, and the clear emphasis is that hard asset acquisition to take the business forward is a prime benefit. There is little seasonality to the hotel, wet and retail business within the M25 corridor bar Christmas. What all of these businesses do have in common is an appetite for the short-lived, small-to-medium ticket, hard asset essential to take the business forward yet one long eschewed for finance by the big banks. Armada Finance, for one, has grown rich on filling the niche for financing beds, glasses, linen, shop fittings, freezers, catering equipment, kitchens – you name it.
An exclusive agreement with Lloyds TSB Cardnet, will see it marketing into its customer base, estimated at 12-14% of the SME market. Discussions are underway with HBOS with around 3% and RBS Streamline with 35%.

Sales strategy will mirror the model that has worked well in the US. Independent sales organisations – telephone shops – will be signed up to support a direct initiative driven by a sales manager. He will be asked to build up a regionally-focused sales team as the thrust expands to the Manchester and Birmingham areas and west Yorkshire. Whether there is an appeal to commercial finance brokers remains to be seen. One leading broker has examined the proposition and found it less than beguiling financially.

I am still seeking information on pricing levels but given that the APRs on the leasing deals for some of the kit I have mentioned can go north of 30%, there is plenty of room for some imaginative offers here.

As for deflecting cashflows – for card income is cash, less the merchanting fees – to purchase hard assets – it is little different to the monthly direct debit to the leasing company, assuming, of course, that the leasing company said yes.

This is a well-researched, well-funded by Goldman Sachs, initiative. One that keys commercially and comfortably into the already well-established processing and data networks to facilitate retail outlets and hospitality providers everywhere.

One of the joys of the UK funding market is that just when you thought that every avenue of finance had been explored, another one comes along.

The arrival of Wageroller was a wake-up call. The concept so simple, the execution so well planned, the appetite for such a facility enormous, the growth it enjoys an endorsement that ingenuity finds its reward.

Merchant Cash Express is not a new concept, it has proved a huge success in the USA, and the UK operation will benefit from this in that the systems and methodology have been tried and tested long before they arrived here.

The timing could be interesting too.

Should the impact of higher interest rates and increased taxes bring pressure upon the sales of wet trade outlets, hotels and shops, there is a fighting chance that some of the early loan requests will be to tide over short-term cashflow problems. This will test the underwriters’ capacity to divine whether the cashflow challenges are indeed short-term, or evidence of a longer downturn making the prospect of extended credit less attractive.

Whatever, it is great to have another product in the marketplace allowing business owners the flexibility to ease themselves over the hurdles created by a cash deficit.

Subject to the competitive elements of pricing and delivery, it should go well.

Editor

Frank Capozza, Merchant Cash Express,
tel: +44 (0) 20 3170 7890, e-mail:
frank.capozza@merchantcashexpress.co.uk, www.merchantcashexpress.co.uk
 

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