The seeds of an industry were planted back in 1998 by a small-business owner unable to get capital for her business. From Barbara Johnson’s predicament came the inspiration for the merchant cash advance, now a multibillion-dollar industry, CAN Capital’s James Mendelsohn says.
NerdWallet recently talked with Mendelsohn, chief marketing officer for New York City-based CAN, to get an overview of the company and its products.
NerdWallet: What is CAN Capital?
Mendelsohn: CAN Capital [previously Capital Access Network] is actually the original innovator in the alternative lending space for small business. The company was founded back in 1998 by a small business owner who found that she could not get capital from her bank for a very successful business she was running. She had a typical small business problem, where you have seasonality of cash flow.
She and her husband drove two innovations that led to the creation of the product we now call the merchant cash advance. One was just the product innovation, and the other was the technology to enable it. So the company really grew up with that product, being able to create more access to capital for small businesses, and expanding the types of businesses that we’re able to serve.
What makes CAN Capital stand out from other lenders?
We have a lot of experience, which translates into very sophisticated underwriting, but we also back that up with our own balance sheet. So, we have a $650 million debt syndicate that is led by Wells Fargo, and we have a $200 million investment-grade securitization facility. There are a lot of people doing lead generation in alternative lending, but they aren’t funding their own books like we are.
The second thing is, we offer a merchant cash advance, and we are able to offer it in a very customer-friendly way. So if you want to come to us direct or through a broker, it’s your choice, and you’ll still get a very competitive offer, regardless of the channel you engage in.
Can you talk a little bit more about your products?
We offer the MCA, which is probably not well named. It’s not really a cash advance in the way you’d typically think of one. It’s a purchase sales contract where we are buying future sales from their card processing.
The customer’s daily deduction comes from the processing stream. So it’s convenient for the customer, and it helps with a business whose revenue and expense fluctuate. It also helps customers who invest in growing their sales — the remittance is based on a percentage of revenue, and so if sales grow quickly, you’re closing out the contract faster.
The loan is well suited for businesses where the preference is for a fixed payment, so they know every day what the remittance is going to be. It’s also tied to ACH [debit from a bank account] and not credit card processing, so for businesses that don’t have a lot of credit card processing revenue, it’s better suited.
[The company lends $2,500 to $150,000 for its business loans, with a repayment schedule of four to 24 months, while MCAs range from $5,000 to $150,000. No personal collateral is needed for either product. Interest costs depend on the credit history of the borrower and the strength of the business, according to Mendelsohn.]
What do small business owners need to do to qualify for funding?
For us, at a minimum, we need a business to be operating for three months with revenue, so we don’t do pure startups. We need the business to have an annual revenue of at least $100,000, and we need it to be in an industry that is on our approved list. We have the largest approved list in the space, so I feel pretty good about that. …
We require proof of ownership in the business, several months of bank statements and processing statements if they process transactions, and based on the size of the funding, we may ask for tax returns. And business owners who have all of that at their fingertips, it’s much easier to get them through our process.
It’s a very fast process — 80% of the customers are two days from application to funding — but it helps when a business has all of that available, to get them through the process quickly.
Are there any businesses that are not a good fit for CAN Capital?
We don’t lend to gambling and adult businesses and nonprofits. Those are fairly standard. Given our heritage coming out of the processing industry, these are also businesses that a lot of processors won’t serve either. And so if you’re an online gambling site, it’s very hard to do anything for you.
The industries we have our deepest experiences with are the ones where we got our start: restaurants, auto shops, retail boutiques and medical offices. But our current approved list is about 840 different industries, and we’re sort of constantly looking at and tinkering with it, because our goal is to have the broadest possible access of capital for small business owners.
What advice would you give a small business owner looking for financing?
I think it helps if you have a good idea of how your business is performing and if you know specifically what you’re looking to do with the capital. … Have an idea of what kind of a product you’re looking for.
We offer different products with different features, but if you look through it and you know you want a term loan and a prepayment option, that will help you narrow down your options and go through the approval process quickly.
For more information about how to start and run a business, visit NerdWallet’s Small Business Guide. For free, personalized answers to questions about starting and financing your business, visit the Small Business section of NerdWallet’s Ask an Advisor page.
Images via iStock and CAN Capital.