Merchant cash advance is looking for an opportunity

The flexibility of the business model has become a lifeline for businesses of all kinds amid the pandemic. Whether it was manufacturers changing their product lines to create more PPE or restaurants embracing delivery only amid demands of social distancing, quickly adapting to new and sudden market pressures was essential. an essential characteristic of companies that have been able to withstand volatility. .

But this market uncertainty can also create opportunities, according to Vincent Napolitano, founder and CEO of FAVO Capital. FAVO Capital recently announced its completed rebranding from FAVO Realty, several months after Napolitano decided to adjust the focus of the business as a commercial real estate company (which it will continue under the FAVO Realty brand), to an alternative financier for small businesses (under the FAVO Capital brand).

With the two divisions now constituting FAVO Capital, the initiative marked a chance to enter the small business finance arena through cash advances from merchants, invoice finance and other types of finance products. short term. Speaking to PYMNTS, Napolitano explained why the market is well positioned to add another alternative lender to the scene, and why the trader’s cash advance can be a valuable tool for small and medium-sized businesses (SMEs) preparing themselves. when the market recovers – despite the often negative reputation of the financing tool.

A gap in the market

Similar to the 2008 financial crisis and the subsequent withdrawal of traditional lenders from the small business finance space, today’s economy signals a familiar skepticism among banks when it comes to supporting their SME clients. , according to Napolitano.

“Banks don’t lend like they used to,” he said. “They won’t lend, or if they lend, it takes a long time for these traders and small businesses across the country to get their money.”

Today, there is a convergence of factors creating a promising opportunity for new market entrants, including the possible reluctance of banks to finance small businesses, as well as the growing number of companies looking for capital to survive. .

The Paycheque Protection Program (PPP) has also emerged in an environment in which small businesses are in desperate need of working capital. In a sense, the PPP initiative has highlighted the value of alternative lenders and FinTechs, digitally driven companies that have been able to facilitate PPP applications and issuance of funds, often with greater agility than the big banks.

At the same time, it has also lifted the veil on the extent of the appetite for working capital among SMEs today. According to Napolitano, PPP loans are not enough.

“It doesn’t meet all of their capital requirements,” he said. “It gives them a ‘boost’, or a nudge, in the short term.”

Smart financing

PPP is not a silver bullet for small businesses, stressed Napolitano, who warned that even if a small business is able to access such help, business owners still need to be smart in the way. which they manage their business to remain financially viable.

This is true when it comes to accessing any type of financing, especially the merchant cash advance – the financing product FAVO Capital focuses on, and which has gained an often negative connotation in recent times. years thanks to problems like exorbitant interest rates and hidden charges. The tool is now at the center of many regulatory discussions regarding borrower protection and led to a lawsuit filed last year by New York Attorney General Letitia James.

“Unfortunately,” Napolitano said, “you will find a lot of bad actors and bad seeds.”

He said he would use his experience as a Wall Street executive to keep compliance at the forefront as FAVO Capital finds its niche as an alternative lender. For small businesses, he said, it is important to offer a variety of financial products in addition to the MCA, allowing entrepreneurs to access short-term financing that can adapt to their growth. It’s about building a relationship with businesses to equip them with tools for long-term success, rather than just doing transactions with small business clients, Napolitano said.

With the rebranding now complete, FAVO Capital is now exploring collaborations with FinTechs to streamline a variety of workflows, including underwriting and loan tracking to strengthen the customer experience for small businesses. SMEs need capital today, but Napolitano predicts that demand will only increase in the coming months.

“We have seen a lot of small funders go bankrupt, bigger funders have left space, or they’ve taken the reins and haven’t loaned as much,” he said. “We thought, more than ever, that there might be a great opportunity to enter this space as the economy tries to get back on track in ’21 and ’22.”

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