Five Point Capital reports on how small business owners’ needs have shaped the financial products it offers
Over the past few years, Five Point Capital has added to its financial products to reflect not only our own growth and expertise, but also to recognize big changes in the needs of our small business customer base. For many years, we only offered equipment leasing. It was a good way for businesses to finance equipment they needed for growth, expansion, new contracts and replacement. The equipment lease was popular because we could finance both new and used equipment, it provided in many cases significant tax benefits, and the equipment could be replaced at the end of the term with updated versions – a great benefit when equipment changes so rapidly with new technology and innovation.
Then, Five Point recognized a new category of customer that did not need equipment, but needed working capital or cash to pay for inventory, advertising, expansion, even taxes. The product that emerged was called Merchant Cash Advance, and it was designed for businesses that took credit cards as payments for their product or service. It turns out that most businesses have a predictable flow of credit card payments over time. A Merchant Cash Advance allowed the business to get that future cash in advance of making those sales. And then, as credit card sales took place, the finance company that advanced the lump sum of cash was paid back by getting a portion of every credit card transaction. The business never writes a check, never gets an invoice, and pays the advance back every time a transaction takes place. If business is good, the advance gets paid back early, but if business slumps, there is no penalty for paying back a little slower. You know you have a winner when more than 50% of your customer base comes back to take out another advance.
But this product is a bit narrow in scope, because while every business needs cash, not every business takes credit cards. So we introduced the Working Capital Loan, a cash loan based pretty much on the business’ average bank balance. This product has very wide application, because virtually any industry is eligible to apply, and the cash can be used for any business purpose.
The product mix is important, because it gives us great flexibility to fit the right product to the business need. We very often see a customer calling to ask about a lease and ending up with a working capital loan. And the opposite can just as easily happen; if the owner is using the cash to purchase equipment, it may make more sense to get a lease.
Alternative lenders like Five Point Capital have thrived because we can get small businesses the type of financing they need even (indeed, especially) when they can’t go to the traditional sources. Banks have turned their backs on all but the very best customers, and even then it can be a struggle. An SBA loan – which, contrary to the name is not made by the government, but by the bank itself – is very complicated and time consuming. So where is the small business to turn but to those who understand that not everything about their finances is perfect and that they will make allowances for circumstances.
We’re delighted to be able to help, and it really was great to hear about a customer who came back this week for a second lease. After the first lease we did with him, he says his business doubled, and it was because we were willing to take a chance that he was able to build his business. Now he’s expanding again, and is calling on us as his partner to help.
How many others like this owner do you think are out there? You know the answer, and you may be one of the businesses in the same situation. Five Point Capital is ready to help, and we are continually evaluating our service levels and the products we offer. (NOTE: Next week, we’ll be making another announcement about another service to the industry – watch this space). It is what has allowed us to survive good and bad times. We are growing, and what ensures that growth is a satisfied customer base.
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