myi: How are you finding the current market conditions for small businesses?
It is a mixed bag, many are struggling and going under, others are seeing great opportunities for growth in the current landscape and grabbing them if they can finance them, and expanding. Start-ups are desperately in search of funds, and finding most doors are closed. Established businesses, with good track records are seeing their existing credit lines capped or reduced, and are now casting around for alternative funding solutions.
This trend is increasingly affecting the hospitality industry. We have anecdotal information from clients who tell us that the current economic climate is encouraging them to reduce dependency on senior bank debt and voluntarily move towards more agile, short-term funding – knowing full well that it will come at a higher cost than traditional sources.
myi: Which sectors are most interested in merchant cash advance?
We have seen enquiries from the whole range of merchant types that we are used to from a decade of experience in the USA. These include Automotive Services, Retail, Dental/Medical, Hair and Beauty - all in demand of capital. That said, the largest sector in the UK as in the USA, remains the Hospitality Industry, which is made up of Restaurants, Hotels, Franchises and to a lesser extent, the Pub Trade.
myi: How can alternative sources of finance such as invoice finance and merchant cash advance be used for growth?
I am not expert in Invoice Finance which tends to be centred on B2B sales – but when it comes to the fast moving world of B2C businesses, a Merchant Cash Advance is often the only asset-based funding method available if other doors are closed. The first advantage of a Merchant Cash Advance is that it can be used for any business purpose. Use is not limited to purchasing equipment or property, the Cash Advance, also known as credit card factoring, can be used for anything from securing large discounts on inventory, advertising, hiring and paying for new staff or refurbishing or expanding premises.
Unlike traditional financing, the approval process is painless and funding can be furnished within a week, allowing business owners to take advantage of opportunities as they are presented. Being a quick turnaround product that is paid back through a small percentage of their future card payment sales, a business is never put in a position where they can’t afford their payments. Further, they can qualify for additional capital before their existing advance is paid in full. A merchant may well take three unsecured cash advances of £10K at 5-6 month intervals, rather than take a £25k loan over three years. We typically experience a 70% renewal rate in the USA, our UK clients look set to repeat this trend.
myi: Why did you launch in the UK market now?
The most important reason is that there is a demand for the product in the current economic climate. The US Merchant Cash Advance market is almost 15 years old. We have grown to be the second largest by market share in a market with $1Bn per annum and growing fast. As the credit and debit card spending habits and patterns in the USA and UK are similar (we are more advanced when it comes to Chip and Pin and Contactless) the UK was a natural fit into our global growth strategy. With a common language, simple company formation regulations and a tradition of being the first stop for US companies who want to internationalise the UK was an easy place for us to start up. Finally, as the UK’s business cash advance market is 10 years behind the US in awareness and market penetration, there is a largely untapped market out there for us to reach.
myi: What plans do you have for the future of Boost Capital?
We really want to create a market leading position when it comes to providing funds to growth oriented, consumer facing, card payment accepting SME’s. To do this we must build awareness of Merchant Cash Advances as a financing option and make sure that business owners, their advisors and bodies such as the CBI, IOD, and BIS understand how we can contribute by funding an otherwise undersupported business sector, ‘Highstreet Britain’.
We plan to take as big a slice of what we believe is at least a £200m per annum opportunity for Cash Advance funding in the To achieve this we have to ensure that we, and our business partner, Baker Tilly Revas, perfect our repayment management services by working closely with all of the UK’s credit card processors. From here we believe there are major opportunities for expansion in the EU and MENA region, we are already being contacted by non-UK Card processors to discuss options for growth there, but don’t want too much distraction at this time.
myi: If you could introduce one rule to improve the finance industry, what would it be?
My Rule would be to create a ‘Office for Financial Innovation’, probably within BIS or within a ‘to be formed’ UK Development Bank. This office would have the brief of providing a forum for Financial Innovators, facilitating and coordinating activities that would bring together representatives of relevant Government departments, BIS, relevant quangos, the FSA, OFT, Business Link, the CBI and IOD. The function of the OFI would be to look at both the opportunities and threats posed to UK PLC from new financial initiatives and support what is a major plank in our economy…. something like UKTI – but focused on domestic UK businesses, not our exporters.
myi: Do you have any predictions for
