For borrowers who own retail establishments, this alternative financing could be an option

Howard Chernin, executive vice president, American Microloan

As published in Scotsman Guide's Commercial Edition, March 2007.

In the past few years, commercial mortgage brokers have encountered tremendous pressure. With rate-based refinancings now a thing of the past and more brokers entering the commercial market, it can be more difficult to thrive.

One way to survive in this increasingly competitive marketplace is for brokers to find ways to differentiate themselves. And one of the most effective ways to accomplish this goal is to offer clients an alternative means of financing.

Commercial brokers who have retail customers are in an ideal position to achieve this with credit card receivables financing.

Brokers who have a client with a retail business -- be it a restaurant, a hair salon or a shoe store -- that accepts credit card payments can offer this beneficial financing product.

How it works

Credit card receivables financing companies advance money to any retail establishment that accepts major credit cards.

First, the financing companies look at a borrowing establishment's credit card sales for the past 12 months. They then can generally lend 70 percent to 100 percent of the average monthly credit card sales, usually via a monetary wire transfer.

The standard term of the advance is six months, though the term can be as long as 12 months for a seasonal business or one whose sales recently have softened.

The lender obtains loan payments automatically by withholding a percentage -- typically 15 percent -- of the retailer's daily credit card batch settlement. The lender arranges for these credit card transactions to go through a processor with whom it has a working relationship.

When it can be beneficial

Credit card receivables financing offers retail borrowers advantages in the ease of the deal and the quick turnaround time.

In addition, payment flexibility can make this arrangement ideal for many businesses. Payments are a percentage of credit card sales, rather than a fixed amount. In other words, if the business is doing well, the loan can be paid back more quickly, thereby minimizing interest costs.

Borrowers will not be put under any pressure to make a fixed payment amount, however. If their sales are slow, then their payments will be smaller.

The actual interest costs vary depending on the daily sales figure -- but the faster the repayment, the lower the interest.

Another benefit of credit cards receivables financing is that once a relationship has been established with this type of lender, business-owners can re-up or take out additional loans quickly and easily.

In fact, this type of financing can be viewed as a readily available source of cash for business-owners who need it.

What else to know

One drawback to credit card receivables financing is that the cost for obtaining funds is slightly more than with traditional financing.

Brokers should recognize that credit card receivables financing works best when a small business needs cash in a hurry. In case of an emergency such as a flood or a restaurant's stove breaking down, having access to quick cash through this route can mean the difference between success and failure.

It is also helpful when funds are needed for expansion, inventory, payroll, new equipment or working capital.

By offering retailers quick financing and working capital through credit card receivables financing, brokers can gain a substantially stronger position over their competitors. It is an outside-the-box way to differentiate themselves in an increasingly tough market.

Howard Chernin is executive vice president of American Microloan, based in Fort Lee, N.J. To contact him, e-mail howard@americanmicroloan.com or call (866) CASH456 (227-4456).